The agreement between the Conservatives and the Lib Dems marks the first coalition government since 1931. The situation in both cases was very familiar. Capitalism is struggling with a severe economic and financial crisis that the wealthy, rich and bankers want to make the bulk of the population – the working class and the poor – pay for. Under the disguise of “national interest” and the “big society” they have to “balance” their budget with cuts in public services, jobs and wages.

The scale of the attacks that that will be unleashed on the population are on a scale never seen before in modern Britain. The coalition is the most preferable vehicle because the severity of such attacks must command a majority of MPS and those who voted in the election to have any chance of being implemented. Even a majority Conservative government would have only had the support of 40% of those who voted and their geographical spread would have been limited. This coalition has 60% of the popular vote and a better demographic spread of MPs – albeit it is still weak in urban working class areas and Scotland, Wales and Northern Ireland.

The Lib Dems have conceded to the Conservatives on every almost every economic area- as we will show below – for a taste of the trappings of power. Their resulting unpopularity and the tensions and splits within the party as they face up to what has to be done in the autumn 2010 spending review and as they try to implement these austerity measures will severely damage it as a political force for a generation. This has the potential to open up the way for a rebranded Labour party in opposition under a fresh young leadership to be seen as the credible alternative to the Butchers coalition.

We will now look at all the economic areas within their “historic” agreement to see what the implications are for the majority of working people and the poor.

Public Spending and the Budget Deficit

In the chancellors TV debate the week before the first leaders TV debate both Osborne and Cable said similar things: an emergency budget within 50 days of the election and severe, fast cuts to “act quickly”. Cable was in favour of scraping Trident’s replacement to save money. By the time the election campaign had started both parties had toned down their message as it was unsurprising clear that cuts in public services were unpopular. The Conservatives would have no cuts in front line services while the Lib Dems would have no cuts in 2010/2011 to give the economy a chance to recover.
Actual Agreement: £6 billion of cuts in 2010/2011 and Trident’s replacement is to go ahead and a full public spending review to take place in the autumn of 2010 once all the Treasury’s figures had been looked at.
Osborne is set to announce the £6 billion of cuts this week which is far away from “we will make the cuts if the economy will take it”. But the longer term cuts that will come out of the autumn spending review which work will start on in late May are quite horrific. The Financial Times have estimated that by 2013/2014 based on all the coalition’s spending commitments and areas they have promised to protect this will amount to £57 billion a year or 22% of the non-protected part of the overall budget. It would be impossible to make these cuts in the non-protected part of the budget which means front-line services will come under attack as we already seeing. The estimate by Capital Economics, a respected mainstream think tank, of 750,00 public sector job losses does not look far off the mark. But even these numbers are likely to be on low side. This is because the Treasury under Alistair Darling estimated that economic growth in 2010 would be 1.5% and 3.5% and 3.8% in 2011 and 2012. This is way above the consenconsenconsensus in the City and the city’s estimates are likely to be far too optimistic. Growth for 2011 is likely to be flat with even the chance of more negative growth if we are dragged into a second recession on the back of the European sovereign debt crisis – we depend on Europe for 60% of our exports.
The severity may tear the coalition apart and no wonder then they wanted to put through the change to parliament’s rules that require 55% of MPs to vote against the government to call for a fresh election.

Taxation

On taxation there is only a commitment to try, depending on the state of the economy, and introduce higher thresholds for the lower paid. Tories’ plans to reverse the regressive national insurance tax on employees has been dropped and now only the employers increase will no longer take place. The Lib Dems have lost their “mansion tax” in return for the Conservatives not widening the band for exclusion from inheritance tax. There is no mention of VAT which most commentator think will have to be raised in 2011/2012. This is another regressive tax which hits the poor more than the wealthy.

Pensions

There is a commitment to protect the state pension so it increases in-line with the greater of average earnings growth or inflation. But to truly protect the level of purchasing power it should be kept in-line with inflation adjusted earnings growth. But the retirement age for men will go up to 66 from potentially 2016 and 2020 for women. This is a major attack on our retirement provison – particularly for women. Public sector pensions are also under fire. Public pensions will move from defined benefits scheme where the final pension is based on the number of years’ service and your average salary over the last few years of your working life to a defined contribution scheme (DCS). A DCS pension is based on the final value of the financial assets that have been invested in by the government body you work for. It essentially means that your retirement is a gamble on the financial markets.*

Conclusion

This agreement gives the Coalition carte blanche to attack the living standards and jobs of working people and the poor. It will result if it is implemented in the most austere set of measures ever carried out by a government in the UK. Even the likely scenario we have outlined here is an underestimation of what they will actually be implemented because of the likely double dip recession and the resultant further losses in the banking sector which globally is still exposed to £600 trillion of derivatives.

We need to start organising a fight back that links the public sector unions to the communities that will be hit by these austerity plans. But we also need to start forming a concrete alternative to these cuts that gives people hope and a reason to fight this butcher’s offensive.

*See our article on the bosses’ assault on our pensions.