Darling's budget - the shape of cuts to come

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Alistair Darling is "Red All Over", wailed The Times. "Return Of Class War", screamed The Daily Telegraph.

Newspaper editors are presumably part of the 0.6 percent of the population who will be hit by the 50 percent top rate of income tax announced by the chancellor in his budget. But this measure should be put in context. When Labour last left office in 1979 the top rate was 83 percent.

The Financial Times (FT) was more realistic about Labour's budget. Behind the headlines and spin, it argued, were a record budget deficit and a prelude to a savage assault on the public sector.

The budget deficit will spiral in the coming years, not as a result of attempts at "economic stimulus", which are pretty minimal, but mainly because tax revenues have plummeted as the economy has contracted.

They are borrowing to plug the gap caused by the crisis, and by their desperate attempts to bail out the banks, rather than to protect working class people. Contrast the £3.1 billion Darling plans to spend on job creation or the £1 billion spent on climate change with the £50 billion he now admits may be lost on the bank bailouts.

The public sector will be attacked to try to claw back this money. As the FT reported, "Public spending is set to fall from 48 percent of national income, a level not seen since 1982-3, to 39 percent in 2017-8. For a Labour chancellor, it is a very conservative policy. The numbers amount to the most sustained squeeze on the public sector in decades." Columnist Martin Wolf added, "What is in prospect is year after miserable year of austerity."

Darling and Gordon Brown might hope to postpone an all-out assault on the public sector, leaving this instead to an incoming Tory administration. But there is every chance that there will be major confrontations before then. The whole budget is based on Darling's fantasy projection of a rapid, sustained recovery for the British economy.

But while Darling expects the economy to grow 1.25 percent in 2010, the International Monetary Fund, which released its latest projections on the day of the budget, expects it to contract. In fact only one the day after Darling's budget new figures from the Office for National Statistics announced that Britain's Gross Domestic Product had shrunk by 1.9 percent - the largest decrease since 1979. This is bleaker than Darling had predicted only days earlier. Coming after the previous quarter's 1.6 percent slump this means that the British economy has faced its worse six months since 1948.

New Labour are caught in a trap. If they cut back spending the real economy and the banking system may sink even deeper. If they borrow too much to increase spending they risk the collapse of the pound and a downgrading of the government's "triple-A" credit rating, making it harder to raise funds. Many commentators now believe that, of the big economies, Britain is next in line for such a downgrade.

Dealing with the worst economic crisis in decades may require a much more serious break with the logic of the system than Darling and Brown are willing to contemplate.

Whether this transpires, and what form it takes, does not simply depend on how deep the crisis is - it depends also on whether the sparks of resistance come together in a wider working class revolt. That in turn depends, in part, on the ability of groups of socialists to fan the sparks of resistance, raising solidarity with those who do fight back and spreading these struggles.