The Year in Review: Austerity

The year 2010 began with David Cameron looking into a TV camera and pledging to the British people: "If any cabinet minister comes to me and says 'Here are my plans' and they involve frontline reductions, they'll be sent straight back to their department to go away and think again." The year ended with him pushing through the most severe cuts to frontline services in living memory.

It is now clear that David Cameron systematically lied to the electorate. He said it was "sick" and "frankly disgusting" to say he would end the NHS guarantee for cancer patients to be seen within two weeks – and then scrapped NHS guarantees, so that the number of patients waiting months before their cancer is detected has doubled. He said hospitals were "my No 1 priority" to be "totally protected" – and then slashed 20 per cent from the budget of specialist hospitals across the country. He said he would "protect the poor" from cuts – and then slashed the income of each poor family by £1,000 and began forcing hundreds of thousands from their homes.

He said he would make affordable childcare his "top priority" – and then slashed the childcare tax credit by 70 per cent. He said he "absolutely" supported the Educational Maintenance Allowance that gives £30 a week to the poorest kids to stay on at school – and then abolished it. He said he would lead "the greenest government ever" – and then began selling off our national forests and introducing deep-water drilling off our coasts. Each time, he promised he would not introduce whiplash austerity before the election – and then did it the moment he seized power.

Unlike the media, who puffed and praised his "compassionate conservatism", the British people saw through this con from the beginning. Cameron only got 36 per cent of the vote in May, despite being up against a Labour Prime Minister as popular as arsenic-flavoured Fanta. Support for Cameron has fallen even further since his true face was revealed. Today the Government's approval rating is minus 18: only 34 per cent approve of its programme, while 52 per cent disapprove – and that's before the cuts hit hardest.

Cameron can't claim to have a democratic mandate for his cuts. He is only in power with the support of Nick Clegg, who won votes by telling the people two days before the election: "There isn't a serious economist in the world who agrees with the Conservatives... [that] we should pull the rug out from under the economy with immediate spending cuts." So Cameron's supporters have implicitly to claim that it doesn't matter what the people want: the cuts must happen anyway, because of the laws of economic gravity. We have spent too much, racked up too many debts, and must cut back or we'll be "bankrupt". The austerity had to happen, just as a bouncing ball has to fall. At first glance, this argument sounds plausible to many people.

But look again at the facts. Britain's national debt has been higher, as a proportion of GDP, for 200 of the past 250 years. If we are "bust" in 2010, we have been bust for almost all of our modern history. In reality, our current debt is not exceptional when seen through the perspective of our own past, the wider world today, or the bond markets. For example, our debt is a third of Japan's, and nobody says they are "bust": indeed, they are borrowing more, at low rates.

The main reason Cameron and George Osborne gave for this austerity being necessary was shown to be false by events this year. They said that if Britain didn't introduce immediate cuts, we would "lose the confidence of the bond markets", which would start charging us much crippling interest on our debts. The bond markets were demanding austerity, so we had to obey.

There's just one flaw in this theory. The bond markets were demanding no such thing. Professor Paul Krugman of Princeton University, who won the Nobel Prize for Economics, says Cameron has invented "invisible bond vigilantes" to justify his policies, but they "do not exist". In fact, he points out, precisely the opposite is true: the bond markets punish the very policies Cameron is pursuing. Who were the last two countries to be downgraded by the bond markets? Ireland and Spain. What were their policies? Immediate austerity, Cameron-style. Why were the bond markets angry? Because these policies cause a collapse in economic growth, and a country in economic freefall really can't pay its debts.

The economists whose predictions have consistently been proven right in this recession – like Krugman and his fellow Nobel Prize winner, Joseph Stiglitz – say the Tories' policies are "pure Herbert Hoover". It is as if they had formed an elaborate historical re-enactment society to play out the early 1930s in modern dress. The world learned some basic economic rules back then. In a recession, private individuals sensibly cut back on their spending and try to pay their debts. But if the state does the same thing at the same time, then nobody is spending, and the recession gets worse and worse. Yet the few people in British public life who have articulated this, like Ed Balls and Yvette Cooper, have been sidelined within Westminster, like an embarrassing smell. In 1931, John Maynard Keynes – who discovered these insights, and transformed economics – wrote: "To read the newspapers just now is to see Bedlam let loose. Everyone who hates social progress and loves deflation feels that his hour has come, and triumphantly announces how, by refraining from every form of economic activity, we can become prosperous again." It could have been published unedited in 2010.

So this austerity isn't economically necessary; it is economically disastrous. The country that followed the Osborne script most closely – Ireland – just had the worst collapse of any industrialised country since the Second World War. So why are the Conservatives doing it? It seems to stem from a combination of ideological zeal and disconnection from the reality of ordinary British people's lives.

David Cameron said this year he was proud to be referred to as one of "Thatcher's children," to some of the loudest cheers from the Tory benches heard in this Parliament. He has always sincerely believed that if you dramatically shrink the state, people will become more free and prosperous. But it takes a lot of intellectual wriggling to graft these beliefs on to this crisis. The great crash of 2008 happened because the state shrank from regulating the behaviour of the banks: the invisible hand of the market pushed us all over this cliff. Yet Cameron has managed to conjure a narrative where this was all the result of "big government" doing "too much". It took footwork of such genius that it makes Fred Astaire look like Ann Widdecombe, but he has managed it for long enough to sound plausible to some.

Cameron's greatest talent turns out to lie in the shifting of blame. On his watch, the people who caused this crisis – the super-rich and the City – have been feted and fattened. The bankers are back to paying massive bonuses to themselves for crashing the global economy (with your money and mine). The official investigation into the collapse of the Royal Bank of Scotland claimed they had done nothing wrong – and is being kept secret from the tax-payers who footed the bill for these mysterious non-mistakes. Cameron and Osborne's approach to their super-rich friends is best summarised in two headlines from the Financial Times. The first declared: "Tax office to soften stance on tax avoidance", in which government officials apologised for being "too black and white" in enforcing tax rules on the super-rich. The second announced: "Tax boost for wealthy heirs", in which it was revealed Cameron and Osborne have given huge tax cuts to themselves and the only people they have ever really known.

Meanwhile, the people who did nothing to cause this crisis – and were farthest from the scene of the crime – are being punished by Cameron. Some 200,000 of the poorest people are being forced out of their homes in London in a process even the Tory Mayor Boris Johnson hyperbolically called "Kosovo-style ethnic cleansing". The Institute for Fiscal Studies says the number of poor children – who will go cold, or hungry, or homeless – is going significantly to rise over the next few years as a direct result of Cameron's decisions. Thousands of poor children who want to do the right thing by working hard and staying on at school after 16 will now find they can't afford the bus fare or schoolbooks without their EMA and will have to drop out. You can see Cameron's priorities most plainly in his grants to local authorities. The poorest part of Britain – Tower Hamlets, where I have lived for the past 10 years – got a cut of 8.9 per cent in its budget. By contrast, the wealthiest areas, such as Richmond-upon-Thames, have received a cut of less than 1 per cent.

Cameron claims that we needn't worry because, as the state is cut back, volunteers will take over and do the same jobs, this time for no money. It's the "Big Society", and it will see – for example – "volunteer crime-fighters" taking over some functions of the police. But Professor Amitai Etzioni, of George Washington University, has studied the evidence and found that it doesn't work this way. In the US, volunteerism is highest in high-tax Massachusetts, and lowest in low-tax Mississippi. In Europe, volunteerism is highest in high-tax Sweden, and lowest in low-tax Eastern European nations. It seems that a thriving state stimulates a thriving volunteering sector – and a shrunken, passive state encourages passivity in the population. Cameron showed his real hand when he all but abolished the government budget for co-ordinating and promoting volunteerism. The Big Society is left looking like a piece of PR, from a man whose only job outside politics was in corporate PR.

The harm done to Britain in 2010 – and this was just the starting gun – did not have to happen. It was a choice to ignore the world's most distinguished economists and cut spending in the midst of economic collapse. It was a choice to slash spending on the poor to pay for slashing taxes on the rich. But it was not the choice of the British people. We opposed it – at the ballot box, in opinion polls, and on the streets. It was David Cameron's choice. There is only one place in Britain where we really do need austerity today – and that is in our judgement on him.

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