Con-Dems declare class war

We have a collective responsibility to oppose the government's hardline economic agenda. Not only because of its social implications but also for the sake of simple economic rationality.

What's happening now is a rerun of Thatcherism - but it will be worse.

Osborne, Cameron, Clegg and Cable are planning cuts of £145 billion or 10.3 per cent of gross domestic product over six years.

That's more than twice the real cuts of the first Thatcherites, and will feel even worse.

It is not surprising that the Financial Times has said the Budget is "risky."

Throughout the entire period under Thatcher the economy generally, and government finances in particular, benefited from North Sea oil revenues. These were equivalent to over 3.2 per cent of GDP in the financial year 1984-5.

That will not be repeated this time.

We must show that we can speak for those who are under attack and that, where we can exercise power before the next general election, we are willing to work to protect people from the brunt of the damage that will be done.

In recent weeks there has been a concerted effort to soften up public opinion in favour of cuts. We are told ferocious cuts must come because either the national debt was too high or that the annual deficit of the public sector was too wide.

However the level of the national debt, at 62.2 per cent of GDP in May, is still one of the lowest in the European Union. The deficit is already declining under the impact of moderate economic recovery and Labour's mildly stimulative 2009 Budget.

The Treasury originally expected the deficit in this financial year to be £178bn. That was lowered to £163bn at the time of the Budget. The Office of Budget Responsibility now expects it to be £155bn.

That improvement in the deficit projections highlights a key fact - growth is the remedy for the deficit.

The economy limped out of recession, growing by just 0.7 per cent in the first six months since the end of the recession. Yet billions have already been wiped off the deficit even with this meagre growth rate.

That's not because of spending cuts, as these had not yet been implemented. The narrowing of the deficit has happened because tax receipts have risen as the economy is no longer contracting - they stood £2.6bn higher this May than last.

Without a crisis level of debt to cling to and a deficit that is already narrowing even as growth recovers to some extent, George Osborne has identified a mythical beast in the form of the "structural deficit," the deficit that he says will still persist even when the economy fully recovers.

Even Investors' Chronicle has exploded the myth of the structural deficit, not least because it is based on the idea of limited spare capacity in the economy, even with one in five workers economically inactive.

But the real focus of Osborne, Cameron and Clegg is not to reduce the budget deficit at all.

Under Thatcher, having inherited a deficit of £8.7bn in 1978-9, the deficit actually rose and averaged £9bn over the next five years, while the debt level rose from £98bn to £157bn.

Every time the deficit showed any sign of narrowing, taxes were cut. This is exactly what the Con-Dem coalition proposes, with the focus now on the regressive lifting of the income tax threshold to £10,000 - with the main beneficiaries being couples who both earn just under £100,000, according to the Institute of Fiscal Studies - and promises from Osborne that the level of corporation tax will be cut.

Meanwhile retailers are already planning for a VAT rise, which hits hardest those who spend most of their incomes, the poor.

And a spurious campaign against public-sector pensions is underway. Yet teachers' real pensions have fallen by 4 per cent since 2000 and NHS pensions are unchanged.

If Labour or the trade unions had started a programme of redistribution based on fairer taxes for the richest, better pay, conditions and job prospects and better minimum standards for employees, then the right would be foaming at the mouth about class war.

But we should be clear that what has opened up now really is class war. Not from the trade unions or Labour, but by the government.

The real aim is to cut the living standards of workers and the poor and to raise the living standards of high earners and the rich.

Osborne's Budget was a full-blooded attack on the working poor, the disabled and those on benefits.

The priorities were absolutely clear from raising VAT and the continuous cuts in the corporate tax rate - a Robin Hood in reverse.

Public-sector pay, child and disability benefits have been frozen and huge cuts to departmental spending limits of up to 25 per cent are to be made.

Students are likely to be forced to pay more for their education.

The jobs being lost now through hiring freezes will swell from the tens to the hundreds of thousands and the quality of services will plummet as a direct result. No wonder the government intends to abolish monitoring of waiting times for health treatments.

But this is not just an attack on the public sector.

Innumerable businesses rely directly on supplying government departments and many others will suffer a fall in demand when pay, jobs or benefits are cut.

The Budget will only deepen the renewed downturn taking place in London and elsewhere.

A double-dip recession in London could have disastrous consequences in the rest of the country.

The Budget will leave London with one of the highest levels of unemployment in the country at 9 per cent compared with 7.9 per cent for the whole economy.

The economically inactive rate in London is now 24.4 per cent, compared with 21.5 per cent in the rest of the economy.

Business confidence and activity will drop further, directly linked to the coalition's ferocious cuts to public spending.

Ultimately the overwhelming majority will suffer from the planned reduction in government investment of one-third over the next four years.

It is a repeat of the fundamental error of the Thatcher years.

The British economy has suffered from chronic underinvestment and the decline of business investment is the biggest single contributor to the recession - nearly half the total.

There is an alternative to a Budget that makes the poor pay for the disastrous actions of the banks and rich.

Our campaign for a living wage in London will not only put money in the pockets of those that need it most but they are also the most likely to spend it, boosting private business and private-sector jobs.

In addition, investing in infrastructure - especially in housing, including rented housing - meets a desperate social need.

It would also create much-needed jobs in the construction sector as well as providing an income stream that can be used for further investment or to pay down the deficit.

Investment is the key to future prosperity and the economy cannot make a sustained and robust recovery without it.

Cutting public investment worsens this crucial economic deficit, and cuts to spending on areas like schools and hospitals lead to reduced private-sector investment.

Osborne said in his Budget statement that reducing corporate tax rates to 24 per cent would show that Britain is "Open for business."

Really he is saying that Britain will be a low-tax, low-wage, low-growth, low-skill and low-investment economy.

He and his colleagues are the new Thatcherites and our duty is meet their agenda with our own, protecting and standing up for the vast majority who stand to lose under this economically brutal and damaging programme.

Ken Livingstone is former London mayor and a contender for Labour's next mayoral candidate. He writes a monthly column for the Star.