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There is an

alternative...
The case against cuts
in public spending

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Public and Commercial Services Union | pcs.org.uk
Foreword

Contents
3 Foreword
W e are told there is a deficit crisis in the UK. We are told that we are
spending beyond our means. We are told that the solution to this
deficit crisis is to cut public spending.
4 The government’s cuts strategy Public spending is an investment, not a debt. Public servants – the vast
– and why it’s wrong majority of whom are low paid – deliver vital services to our communities.
The campaign of vilification against public services is motivated by a desire to
6 Economic growth and
cut and privatise these vital services. The reality is that there does not need to
public investment
be a single penny taken away from any public service, or a single job lost.
8 The case against privatisation The deficit is due to the recession, which has reduced revenues as less
people are in work and are therefore spending less. At the same time,
9 Tax justice
government expenditure has increased as more people are without work and
10 Cut the real waste are entitled to benefits.
11 The PCS alternative If the government cuts more jobs this will only exacerbate the deficit crisis –
more people will be unemployed and there will be less revenue.
12 What you can do The answer to the crisis is therefore to create jobs not cut them. Currently
there are less than 500,000 vacancies, while 2.5 million people are unemployed.
‘Getting tough’ on welfare will not work since there are not the jobs available.
It will simply cause more misery – which is the only possible outcome of the
coalition government’s policies.
This is why we must resist this government’s policy of savage cuts, and reject
their flawed arguments. We need a new economic strategy based on public
investment, job creation, and tax justice.
Over the coming months we need to win the arguments for this alternative
and then force government to implement it. Otherwise our members and our
communities could face years of misery. This short pamphlet spells out the
compelling case against cuts, and for a new vision.
Close the

£120bn
tax gap

Mark Serwotka Janice Godrich


General secretary President

2 3
The government’s cuts strategy – and why it’s wrong

F irstly, we need to get the ‘debt


crisis’ in perspective. The table
opposite shows UK debt relative to
Debt as % of GDP

Japan
The experience of Ireland
Ireland shows how cutting public
disproportionately affect women, as
68% of the public sector workforce is
female. The public sector also has a
other major economies. US
spending can damage the economy. much better record of employing
From 1918 to 1961 the UK national The crisis in Ireland was caused by disabled workers too.
debt was over 100% of GDP. During that France the collapse of its banking sector. The global race to cut labour costs
period the government introduced the The massive cuts in spending and is central to the economic collapse
Germany
welfare state, the NHS, state pensions, public sector pay that followed have we have seen around the world.
comprehensive education, built millions UK increased unemployment and Squeezed consumers are defaulting
of council houses, and nationalised a 0 50 100 150 200
sapped demand, causing the on mortgages and personal debts,
range of industries. The public sector economy to shrink further. Because and are less able to spend in the
grew and there was economic growth. of this, Ireland is now considered economy. In the UK, the value of
Today, the coalition government six years 600,000 public sector jobs more at risk of sovereign default wages has declined from nearly
wants to turn back the clock. It is set on would be cut, and 700,000 private than before it started making cuts. 65% of GDP in the mid-1970s to
dismantling the NHS and comprehensive sector jobs would also be lost – based Historical research clearly 55% today. Over the same period,
education, and it is attacking the welfare on the current government’s policies. demonstrates that budget cuts the rate of corporate profit has
state. It is not doing this because the Job cuts are therefore counter- actually provoke increases in increased from 13% to 21%. It is no
country is on the verge of economic productive. Mass job cuts would worsen the national debt by damaging coincidence that in this period trade
collapse, it is doing it because it is the economic situation by reducing the economy. union rights were severely restricted,
ideologically opposed to public services demand in the economy, and providing large swathes of the economy
and the welfare state, and committed less tax revenue. privatised, markets deregulated and
to handing over more of our public The government claims it can make corporation tax slashed.
assets to big business. cuts of between 25% and 40%, and uncollected tax at record levels and There is an urgent need to rebalance
Cutting public sector jobs will increase still “protect frontline public services”. a growing tax gap. the economy in the interests of people
unemployment. This would mean This is impossible – not just because The impact is likely to be highly over big business.
increased costs for government in ‘frontline services’ are being cut, but divisive too. There is evidence of this
benefit payments and lost tax revenue. because services rely on ‘back office’ already in the UK. In areas where public
If people’s incomes are taken away or support staff. For example, cutting sector workers have already been laid
cut through pay freezes they will spend support staff like NHS cleaners has off, retail sales have fallen faster than
less. Less consumer spending means meant an increase in healthcare the UK average. In nations and
cuts in the private sector, and lower acquired infections, costing the NHS regions where public sector workers
VAT revenues. £1 billion. All public services require tax make up a high proportion of the
Internal analysis by HM Treasury revenues to fund them, yet HM Revenue workforce, major public sector
proves this to be the case. Leaked & Customs has cut 25,000 staff in cuts could destroy local economies.
documents estimated that over the next recent years, which has led to Any attack on the public sector will also

4 5
Economic growth and public investment

I nvesting in public services is the


solution to the deficit crisis. Instead of
cutting jobs, we should be creating
we should also invest in electric
buses and tram networks.
Only 2.2% of UK energy comes
Government debt as % of GDP
55

50
them. Jobs are not created by bullying from renewable sources compared 45
people on benefits into jobs that don’t with 8.9% in Germany, 11% in France, 40
exist. Instead there are several areas and an impressive 44.4% in Sweden. 35
where public sector jobs urgently If we are committed to tackling climate 30
need to be created. change and ensuring domestic energy 25
It has been estimated that over a security there needs to be investment 20
million ‘climate jobs’ could be created in renewable energy technology.

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if the government was serious about All of these industries would
tackling both climate change and generate revenue – people are billed
unemployment – these would include for electricity, buy tickets to travel on As a result of the UK government’s
areas like housing, renewable energy public transport, and pay rent for £1.3 trillion bailout to the financial
and public transport investment council housing. sector, the government still owns over
including high speed rail, bus networks Research by Richard Murphy (of £850 billion in bank assets. This figure is
and electric car manufacture. Tax Research) has shown that the roughly equal to the total UK debt.
Today there are 1.8 million families state recoups 92% of the cost of The UK has an 84% stake in RBS and
(representing over 5 million people) creating new public sector jobs – a 41% stake in Lloyds TSB. In addition,
on council house waiting lists. There through lower benefit payments the state also owns Northern Rock and
is an urgent need to build affordable and increased tax revenues. Bradford & Bingley. Under public
housing for these people, which ownership and control these assets
would also help reduce housing The banks could yield significant annual income
benefit payments. We should never forget that it was to the Government, and could be
The UK lags behind much of the the banking sector that caused the used to meet social needs and tackle
rest of Europe in the development recession, and is ultimately responsible financial exclusion.
of a high-speed rail network, which for the huge debts that the UK has

25
would have the potential to create amassed. Despite causing the crisis,

%
thousands of jobs and reduce carbon the banking sector has escaped any
emissions by shifting passengers and significant regulation, and bankers
freight away from road and air travel. are again awarding themselves
Much of the country outside of London huge bonuses.
also needs huge investment in bus The table opposite clearly shows cuts will devastate
services – and, just as we should how UK debt accelerated after the public services
invest in electric car technology, banking crisis in 2008.

6 7
The case against Tax justice
privatisation
A s a result of the government’s
agenda to slash the public sector,
privatisation, outsourcing and the
programmes are now outsourced.
Qinetiq was a company formed from
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the privatisation of the Defence
A ddressing the ‘tax gap’ is a vital
part of tackling the deficit.
Figures produced for PCS by the
A comparison between levels of
benefit fraud and the tax gap
Benefit
fraud
Private Finance Initiative (PFI) are a fast Evaluation and Research Agency Tax Justice Network show that
growing threat to civil and public (DERA). In 2007, the 10 most senior £25 billion is lost annually in tax Tax gap
services despite the many performance managers gained £107.5m on a total avoidance and a further £70 billion
failures of past privatisations. investment of £540,000 in the in tax evasion by large companies 0 20 40 60 80 100 120
£ billion
Privatisation is no solution to the company’s shares. The return of and wealthy individuals.
national debt. Evidence confirms that 19,990% on their investment was An additional £26 billion is going
after transfer to the private sector the described as “excessive” by the uncollected. Therefore PCS estimates Closing the tax gap, as part of overall
terms and conditions of workers are National Audit Office. In 2009, the total annual tax gap at over economic strategy, would negate the
worse than before, the public sector Qinetiq offered its staff a pay freeze. £120 billion (more than three-quarters need for devastating cuts – before even
loses any revenue stream while Although the economic downturn
zz of the annual deficit!). It is not just considering tax rises.
ultimately keeping the risk, and services has led to a drying up of bank PCS calculating this; leaked Treasury Our personal tax system is currently
to the public decline or cost more: finance for PFI projects, the documents in 2006 estimated the tax highly regressive. The poorest fifth of
government has got round this by gap at between £97 and £150 billion. the population pay 39.9% of their
In the DWP, welfare is now
zz funnelling public funds – through If we compare the PCS estimate of the income in tax, while the wealthiest fifth
described as “an annual multi-billion the Treasury’s Infrastructure Finance tax gap with the DWP estimate of pays only 35.1%. We need tax justice in
pound market”, and despite the Unit – to state owned banks who benefit fraud, we can see that benefit personal taxation – which would mean
department’s own research showing then loan finance to PFI consortia fraud is less than 1% of the total lost in higher income tax rates for the richest
that Jobcentre staff outperform the (which then claim inflated returns to the tax gap (see diagram opposite). and cutting regressive taxes like VAT
private sector in helping people back government for the next thirty years, Employing more staff at HM Revenue and council tax.
to work, all contracts for welfare greatly exceeding the money given to & Customs would enable more tax
them). The journalist and anti- to be collected, more investigations
privatisation activist George Monbiot to take place and evasion reduced.
observed, “the Private Finance Compliance officers in HMRC
Initiative no longer requires much bring in over £658,000 in revenue
private finance or initiative”. per employee.
If the modest Robin Hood tax –
Public services were won by trade union a 0.05% tax on global financial
Close the

£200bn £120bn
struggles in an effort to establish the transactions – was applied to UK
basis of a civilised society. Driven by the financial institutions it would raise an
desire for maximum profits, the private estimated £20–30bn per year. This
private finance sector fails to provide effective and alone would reduce the annual deficit
initiative (PFI) debt efficient public services. by between 12.5% and 20%.
tax gap

8 9
Cut the real waste
The PCS alternative...
W hile it is not necessary to cut a
penny in public expenditure due
to the ‘deficit crisis’, there are of course
have arrived at the view that a like-for-
like Trident replacement is not the
right thing to do.”
There is no need for cuts to public
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services or further privatisations
areas of public spending which could be The 2010 Liberal Democrat manifesto
redirected to meet social needs. committed the Party to: “Saying no to Creating jobs will boost the
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In the civil and public services, we the like-for-like replacement of the economy and cut the deficit. Cutting
know there are massive areas of waste Trident nuclear weapons system, jobs will damage the economy and
– like the £1.8 billion the government which could cost £100 billion.” increase the deficit
spent on private sector consultants last PCS policy is to oppose the renewal We should invest in areas such as
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year. The government could get better of Trident and invest the money saved housing, renewable energy and
advice and ideas by engaging with its in public services, whilst safeguarding public transport
own staff and their trade unions. Ministry of Defence staff jobs.
There is also the waste of the The UK debt is lower than other
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government having 230 separate War in Afghanistan major economies
pay bargaining units, when we The war in Afghanistan is currently
There is a £120 billion tax gap of evaded,
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could have just one national pay costing £2.6 billion per year. The war is
avoided and uncollected tax
bargaining structure. both unwinnable and is making the
There are also two other large areas world less safe. More important than The UK holds £850 billion in banking
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where government costs could be cut. the financial cost are the countless assets from the bailout – this is more
Afghan and British lives that are being than the national debt
Trident lost in this conflict.
We could free up billions by
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The current Trident system costs the
not renewing Trident
UK around £1.5 billion every year.
A private paper prepared for End the use of consultants
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Nick Clegg (in 2009, when in
opposition) estimated the total costs
of Trident renewal amounting to
Close the

£120bn
between £94.7bn and £104.2bn
over the lifetime of the system,
estimated at 30 years. This equates
to £3.3bn per year.
£1.8bn
government tax gap
At the time Nick Clegg (now Deputy spend on
Prime Minister) said: “Given that we private sector
need to ask ourselves big questions consultants
about what our priorities are, we last year
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What you can do
Spread the word! Download this
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pamphlet from the PCS website and
send it to your friends, or share it
using social networking sites
Get involved in campaigns and events,
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and keep informed at pcs.org.uk
Unite with other local trade unions
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and community groups
Recruit your colleagues to the union –
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there’s never been a more important
time to join PCS
Lobby your local politicians against
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public service cuts and against the
attack on our jobs and conditions

£658,000
the am ount a tax
compliance officer
collects each year
4015 Pics: Karen Robinson

Public and Commercial Services Union | pcs.org.uk

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