POA Circulars

161 | 17.11.2011

Exposing the Economic Myths

All too often the Coalition Government through the media put out sensational alarmist propaganda to justify their damaging cuts agenda.
The POA are campaigning along with other trade unions to expose the myths.  Here are a few which our membership should be aware of;

Myth 1

“Public Sector Pensions are not sustainable or affordable”.

The National Audit Office found that even before the switch to CPI from RPI indexation the cost was sustainable: Projections suggest that the 2007/08 changes are likely to reduce costs to the tax payers by £67 billion over 50 years, with cost stabilising at around one per cent of Gross Domestic Product (GDP) or two per cent of public expenditure.  The Public Accounts Committee also found and so did the Hutton Report that the central projection of future costs before any further changes fall from 1.9 per cent of GDP to 1.4 per cent by 2060.  How best to measure the costs of commitments that go a long way into the future is controversial.  Many of the attacks and sensational headlines, about so called unsustainability of all public sector pensions try and express all these future commitments, as if they were a bill that had to be paid today.  Do not be fooled fight for your future.

Myth 2

“Coalition Government believe there is only one version of events to justify the austerity cuts”.

Leading economists disagree with George Osbourne. Professor Paul Krugman Nobel Prize for Economics in 2008 stated in the New York Times on 24th March 2011 “jobs now, deficits later was and is the right strategy.  Unfortunately, it’s a strategy that has been abandoned in face of phantom risks and delusional hopes”.  Further, Professor Christopher Pissarides, Nobel Prize for Economics in 2010 stated in the Daily Mirror on 9th January 2011, “the Chancellor has exaggerated the sovereign risks that are threatening the country”.

Myth 3

“Government spending is too high”.

There are two sides to deficit which consists of income from taxes and spending on public services, investments and debt payments.  It is not so much spending is too high it could be that Government income is too low.  The United Kingdom overall tax take is approximately 36%, against an EU average tax take of greater than 40%.  The time has come to stop tax avoidance and produce long term meaningful jobs, instead of unemployment soaring to 2.7 million people.

Myth 4

“The deficit is due to over spending”.

The facts are growth and deficit are linked.  The recession caused the deficit not overspending. The facts are the fall in GDP in 2008/9 was 10%.  A rise in unemployment of one million, which in turn was a loss of tax that equalled £100 billion due to unemployment.  The deficit prior to the recession was £38 billion and the deficit after the recession is £145 billion.

Myth 5

“Coalition Government propaganda claim our debt is among the highest in the world”.

Our debt is lower than our trading partners for example our debt 60% as a percentage of GDP is lower than Germany at 72%, Japan at 200% and USA at 95%.

Myth 6

“The UK was on the verge of bankruptcy”.

Gross Domestic Product equals consumer spending, business investment, Government spending and international trade income.  The GDP in March 2011 was £1.505 trillion.  Ours is the 6th biggest GDP in the world.  The UK has never defaulted on a debt. Our current debt is long term, cheap and sustainable.

Myth 7

“Our debt is higher than it’s ever been”.

A national debt of greater than 100% of GDP was sustainable for more than 20 years after the war.

Myth 8

“We can’t afford to borrow to pay for the deficit”.

The fact of the matter is Governments always borrow.  The cost of financing the deficit (debt interest payments) is cheap, lower than in any year from 1981-97 and we are borrowing over a long period, why pay the deficit off in 4 years.  If you had a twenty five year mortgage would you starve your family to pay it off in 4 years.  Here is a statistic, the debt interest payments today are £120 million; under Margaret Thatcher they were £174 million.

Myth 9

“The deficit was caused by overspending and borrowing”.

Government borrowing as a percentage of GDP from 1997–2008 was no higher than previous Governments.  Some commentators wanted to cause alarm amongst the general public, to justify the Coalition Government cuts to public sector workers. Since then private sector firms have closed final salary pensions, unemployment has soared and less taxes are being collected.

Myth 10

“We can bailout the banks but not the public sector”.

The Government is borrowing to finance a bank bailout (deficit) that is 6.5 times bigger than our own national deficit £145 billion.  The value of the bank bailout was £955 billion.  The bank deficit as a percentage of GDP is 100%.

The cost of financing the deficit is £5 billion per year and still they take obscene bonuses whilst Prison Officers and related grades are suffering pay freezes and attacks on their pensions and living standards.

I have provided the myth buster to stimulate debate amongst the membership, as sometimes the spin machine of the media can result in acceptance that public and private sector workers need to feel the pain for a recession and deficit that was not of our making.

I would appreciate this Circular being brought to the attention of the membership.

Yours sincerely


General Secretary