Yesterday, the Chancellor claimed that his budget represented: “Investment in a more innovative, high-skilled economy. Because that is the only sustainable path to individual prosperity. World class public services.”
But in almost the next breath, he set out his ‘new fiscal rules’ committing him to balance the books for day-to-day spending by 2024-25 and maintaining the pretence that the UK government’s finances should run in the same way as pensioners household finances, ‘balancing the books.’ As we have pointed out many times before, this misguided obsession with the level of government debt is often nothing more than a cover for regressive policies.
So, is this really a Budget for optimism as the Chancellor suggests? No, it is a tired, defeatist Budget which will do nothing to tackle the UK’s most important challenges:
- it will not tackle the UK’s dismal recent track record of growth;
- it will not help ordinary people – especially those on lower incomes or unable to work; and
- it will not tackle the climate emergency.
Not Investing in Growth
All countries struggle with growth – but the UK, especially since 2016, has had an utterly dismal record.
The horizontal axis represents the long-term growth trend in real (inflation-adjusted) GDP per head of population. Many countries struggled in the aftermath of the global financial crisis, and the UK was amongst the worst despite having the advantage of currency that it controls (unlike Greece and Italy). The vertical axis shows the annualised growth rate since 2016 when the Brexit referendum was held. Even though Brexit has not yet been fully implemented it has had a severely depressing effect on the UK economy which has become the stand-out poor performer.
The Office for Budget Responsibility (OBR) estimates the damage done to the UK economy by COVID and by Brexit at 2% and 4% of GDP respectively. But even before Brexit and COVID, the UK had been underinvesting in growth.
To fix this problem, the UK government needs both to invest itself – for example in green investments, Health and Education, and in fundamental research, which is difficult for companies to invest in, but which provides enormous long-term gains – and to encourage business investment.
The budget delivers neither.
As the Institute for Fiscal Studies (IFS) comments:
“For many areas, though, spending will still be substantially less in 2024-25 than it was back in 2010. That will be true of Justice and Local Government for example. Perhaps the most striking contrast lies in the different paths for health and education spending. Over this spending review period Education spending is set to rise by about 2% a year against a 4% a year increase for the Department for Health and Social Care. Over the whole period since 2010, by contrast, Health spending will have increased by over 40%, Education spending by less than 3%.”
Not Helping Ordinary People
As the Financial Times commented:
“Britain’s poorer households face a cost of living crisis this winter and next spring with the main welfare benefit being cut by £20 a week and food and energy bills set to rise another several hundred pounds a year in an acute squeeze on incomes.”
And the Institute for Fiscal Studies adds that they may also have to get by with less support from their Local Authorities: “One area that may still face a bit of a struggle is local government. Despite a real increase in spending power, tighter limits on what can be raised in council tax, the fact that grants are being frozen after next year, a continued failure to update funding formulae, and the demands of the social care system, could still see some local authorities having to cut services over the next few years.”
As the IFS said, “Over the next several years a combination of tax increases and high inflation will mean very slow growth in living standards. A middle earner is likely to be worse off next year than this, as high rates of inflation and tax rises more than negate small average wage increases. This of course comes on top of a decade of historically feeble increases in real incomes. The gap between what we might have expected on the basis of pre financial crisis trends and what is actually happening is staggering. Average gross earnings could have been some 40% higher had pre crisis trends continued.”
And even if we take trends based on a period including the Global Financial Crisis, the gap which has opened up since 2010 is enormous.
The graph shows real (i.e. adjusted for inflation) earnings for a typical adult in full-time employment. Up until the Global Financial Crisis struck, earnings had been rising slowly but steadily. Since 2010, they have fallen and not yet recovered to the level they attained 2007. This is the longest period of wage stagnation for well over a century.
Over the same timeframe that working people have been becoming poorer – mass impoverishment has taken hold – the wealthiest have seen a rather different picture:
“The UK has undergone a wealth boom in recent decades, which has continued even while earnings and incomes have stagnated. But official data has struggled to capture these gains, and misses £800bn of assets held by the very wealthiest households in Britain.”
Not Tackling Climate Change
Finally, course, the world is facing climate crisis and the UK is claiming a leading position in resolving it. But let us look at the numbers. The total size of the UK economy is around £2 trillion. The investment shortfall we talked about above is of the order of 5% GDP or £100 billion per annum.
So a government which was serious about tackling both growth and the climate emergency might be looking to unlock, from its own resources and by encouraging private sector investments, many tens of £ billions per annum in initiatives such as renewable electricity generation, insulating homes and facilitating the transition to electric heating, providing an infrastructure which makes owning electric only vehicles a realistic possibility for city-dwellers, supporting a transformation of agriculture to environmentally friendly practices, et cetera.
Instead, the government is proposing around £10 billion over three years on initiatives such as the electrification of UK vehicles and their supply chains and increased new funding to encourage more people to walk and cycle, decarbonising buildings, including supporting low-income households to make the transition to net zero while reducing their energy bills, investment in net zero innovation, including nuclear technologies and offshore wind, Carbon Capture, Usage and Storage and hydrogen producers. These initiatives will be beneficial, but their total scale is a tiny fraction of what is needed.
As The Guardian put it,
“In failing to make any serious new government investment in the UK’s green future, Rishi Sunak has chosen to gamble that the market will deliver instead. That is a very high-stakes bet in the face of a climate emergency.”
Furthermore, the tax choices Sunak made seem bizarre in the light of the three challenges above:
- he favours finance over the real economy: the ‘bank surcharge’ on profits will be slashed from 8% to 3% in 2023 — the same year that corporation tax rates for all businesses rise from 19% to 25%
- he favours the rich over the poor: the tax rises on NI hit working families but not those with unearned income such as rents, capital gains and investment income, while the abandonment of the triple lock on pensions hits a group who already have one of the lowest pensions in Europe
- he refuses to tax polluters more: he froze fuel duty and is subsidising air-fares (and all this just a few days after 265 of his colleagues voted to allow sewage to be pumped into our waterways and coastal waters).
The Financial Times quoted Sunak as claiming that he is on a ‘moral’ mission to cut taxes and halt the inexorable growth of the state. This is not the morality that looks after the population as a whole and protects the vulnerable. This is the ‘morality’ of the market fundamentalist.
As in March, Sunak has delivered a Budget which is not what the UK needs. Indeed it is a Budget devoid of new ideas and which offers no hope to most people: either he genuinely believes that, despite all the evidence, “our plan is working” or he knows that it is not delivering for the country but is happy to play his part in turning the UK into a Plunder State.
As we wrote recently, it is time to change track – and very feasible to do so if we unite in demanding it:
“We should be aiming for a just, prosperous, democratic society in which everybody has the chance of a decent life. A society with secure, fairly paid jobs so that ordinary people have a reasonable expectation of being able to afford to buy themselves a flat or house. A society where people can count on being able to bring up children without fear of poverty. A society where access to healthcare is a right not a luxury. A society where the government accepts that it has responsibilities for the population as a whole and that collective action is often the only way to solve important problems (for example tackling the climate emergency or funding basic research with no immediate commercial application).
A society, above all, where each new generation has a reasonable expectation of a better life than its predecessors.”
If you think you might like to help build such a world, or just to keep informed, please do sign-up and join the 99% Organisation.