By Diana O’Dwyer
After almost seven years of austerity, public services are at breaking point. Cuts in capital expenditure on housing of 84% have left 100,000 households on the housing list and spending per college student has been slashed 41%. These are just two examples of Austerity Phase One. And despite what Noonan and Burton say, it is nowhere near ‘over’ given none of the cuts has been significantly reversed.
Austerity phase two
Nevertheless, the government is set on developing Austerity Phase Two. This will use the disastrous impact on public services of the first phase as an excuse for introducing more user fees and financialised forms of privatisation. Water charges and Irish Water show us their model of the future.
First, the government points out a service is near collapse and argues the best way to guarantee funding for it is to pay ‘at the point of use’, which will also ‘reduce waste’. Next, it uses the income stream this creates to raise funds on financial markets, claiming the huge investment now needed means the state could not borrow such large sums itself and EU rules compel it to fund public investment ‘off-balance sheet’ to avoid increasing the national debt.
Bondholders profit from public services
This ensures bondholders get their money back and reassures prospective investors, who might be wary of lending to the Exchequer directly, given our enormous national debt after bailing out the banks. This way, they get a guaranteed income from user fees to pay the interest on their bonds, as well as a claim on a valuable public asset and implicit state guarantee if things go belly up. The government is already introducing similar financialised funding models for social housing, with plans to raise investment ‘off-balance sheet’ off the back of (rising) local authority rents. Introducing student loans and securitising them could extend this to education.
In the process, the funding of public services is reversed. Previously, progressive taxation meant corporations and the rich paid some of the cost of public services. Now capitalists will be paid to provide public services by the working class. And in contrast to classic privatisation, where a service is explicitly sold off to a private company, the risks for capitalists are reduced as they can now invest as bondholders rather than shareholders, while the state acts as guarantor / debt collector.
All of this makes winning the battle against water charges even more important, as a victory in a wider war against financialised privatisation.