Johann Hari: A colder, crueller country – for no gain

Margaret Thatcher is lying sick in a private hospital bed in Belgravia but her political children have just pushed her agenda further and harder and deeper than she ever dreamed of. When was the last time Britain's public spending was slashed by more than 20 per cent? Not in my mother's lifetime. Not even in my grandmother's lifetime. No, it was in 1918, when a Conservative-Liberal coalition said the best response to a global economic crisis was to rapidly pay off this country's debts. The result? Unemployment soared from 6 per cent to 19 per cent, and the country's economy collapsed so severely that they lost all ability to pay their bills and the debt actually rose from 114 per cent to 180 per cent. "History doesn't repeat itself," Mark Twain said, "but it does rhyme."

George Osborne has just gambled your future on an extreme economic theory that has failed whenever and wherever it has been tried. In the Great Depression, we learned some basic principles. When an economy falters, ordinary people – perfectly sensibly – cut back their spending and try to pay down their debts. This causes a further fall in demand, and makes the economy worse. If the government cuts back at the same time, then there is no demand at all, and the economy goes into freefall. That's why virtually every country in the world reacted to the Great Crash of 2008 – caused entirely by deregulated bankers – by increasing spending, funded by temporary debt. Better a deficit we repay in the good times than an endless depression. The countries that stimulated hardest, like South Korea, came out of recession first.

David Cameron and George Osborne have ignored all this. They have ignored the warnings of the Financial Times, the newspaper most critical of their strategy. They have dismissed the warnings of Nobel economics laureates like Paul Krugman and Joseph Stiglitz, who have consistently been proved right in this crisis. They have refused to learn from the fact that the country they held up as a model for how to deal with a recession – "Look and learn from across the Irish Sea," Osborne said – has suffered the worst collapse in the developed world. They have instead blindly obeyed the ideological precepts they learned as baby Thatcherites: slash the state, and make the poor pay most.

Osborne galloped through his Comprehensive Spending Review (CSR) speech, failing to name almost any of the services that will be slashed or shut down. It's revealing that he doesn't want to name them while the nation is watching.

But beneath the statistics, there was a swathe of human tragedies that will now unnecessarily unfold across Britain. PriceWaterhouseCooper – nobody's idea of a Trotskyite cell – says that a million people will now lose their jobs as a direct result. My father lost his job at the height of the last Tory recession, and had to leave the country to get another one. I remember how that felt. I remember what that did to my family.

Now it's going to happen to a million more families and probably more. For the private sector to get all these people into work, as Osborne claims, there would have to be the most rapid business growth in my lifetime. Does anyone think that will happen? Osborne has chosen the weakest people to take the worst cuts. The poorest 16-year-olds were given £30 a week to stay on in education, so they could afford to study – until Osborne's team dismissed it as a "bribe" and shut it down. The frailest old people depend on council services to wash them and feed them – yet Osborne just slashed their budget by 30 per cent, which service providers say will mean more pensioners being left to die in their own filth. Every family living on benefits is set to lose an average of £1,000 a year – which, as I've seen from living in the East End of London, will mean many poor kids across Britain never getting a birthday party, or a trip to the seaside, or a bed of their own, or a winter coat. This isn't just On Yer Bike, it's On Yer Own.

The irrationality of this approach is perhaps plainest when you look at housing. We badly need more affordable housing in Britain. Some 4.5 million people are stuck on waiting lists, and the average age of a homebuyer is now 37. It's a cause of constant stress to the real middle class and despair for the poor. By a happy coincidence, house-building is one of the best stimulators of the economy: it employs a lot of people on average wages, who then spend their money quickly in a "multiplier" effect.

Yet Osborne has chosen the opposite. There will be on average one new home built per week in the whole of London and the south-east. That's one. Indeed, instead of building homes, he's driving people out of them. By slashing housing benefit, London councils alone say 83,000 people here are going to be forced to leave their homes, with 1.3 million ending up in more debt. Cameron has revealed that his baby daughter sleeps in a cardboard box decorated for her by her big sister. Thanks to him, a lot more people are going to be sleeping in cardboard boxes soon.

It can't be coincidental that this is being done to us by three men – Cameron, Osborne, and Nick Clegg – who have never worried about a bill in their lives. On a basic level, they do not understand the effects of these decisions on real people. Remember, Cameron said before the election: "The papers keep writing that [my wife, Samantha] comes from a very blue-blooded background", but "she is actually very unconventional. She went to a day school." Osborne is a beneficiary of a £4m trust fund he did nothing whatsoever to earn and which is stashed offshore to avoid tax. Clegg actually thought the state pension was £30 a week, a level that would kill pensioners.

These attitudes have real consequences. We're not in this together. Who isn't in it with us? Them, their friends, and their families. They were asked to pay nothing more in this CSR. On the contrary: they are being let off left, right and centre. To pluck a random example, one of the richest corporations in Britain, Vodafone, had an outstanding tax bill of £6bn – but Osborne simply cancelled it this year. If he had made them pay, he could have prevented nearly all the cuts to all the welfare recipients in Britain. You try refusing to pay your taxes next time, and see if George Osborne shows the same generosity to you as he does to the super-rich.

There is one stark symbol of how unjust the response to this economic disaster caused by bankers is. They have just paid themselves £7bn in bonuses – much of it our money – to reward themselves for failure. That's the same sum Osborne took from the benefits of the British poor yesterday, who did nothing to cause this crash. And he has the chutzpah to brag about "fairness."

Britain just became a colder and crueller country. And for what? To pantingly follow a disproven ideology over a cliff. On the eve of the general election, Cameron told us: "There'll be no cuts to frontline services," "we're not talking about swingeing cuts," and "all cuts will be fair". Is it possible to call him anything but a liar and an ideologue today?

You can enjoy a long rest, Baroness Thatcher – your successors have embarked on a mephedrone-charged imitation that exceeds your most fantastical dreams.

@'The Independent'