Every spring, the Chancellor produces a mini-budget, the Spring Statement.
This one faces a few challenges: for the last 12 years, most people in the UK have been getting poorer which is an unprecedented phenomenon in modern British history; we have a still unresolved pandemic which has both health and economic side-effects; oil and energy prices have risen sharply; the climate emergency needs rapid action; the war in Ukraine has shown us how dependent we are on oil and gas; and the Bank of England has forecast a serious fall in living standards.
Given this context, what would a responsible Chancellor do?
The responsible course would have been to formulate a Budget on behalf of the British people, recognising the serious challenges we face and deploying all the firepower that the government has at its disposal; that is the opposite of what Sunak has done:
- a responsible government would have seen this as a national emergency and acted decisively;
- Sunak has produced a Budget which does next to nothing;
- It is a Budget that only works in the make-believe world of market fundamentalism.
A responsible government would act decisively
Even before the recent rises in process, the UK had a problem of poverty and of mass impoverishment. As the Office for National Statistics (ONS) said in 2020,
“Child poverty in the UK is a growing issue and affects more than 4 million children. Growing up in poverty can have negative consequences for children’s well-being and future life prospects”
And as we recently wrote, most people in the UK are poorer today than they were in 2010.
We have also a long-term track record of underinvestment, and the lowest growth since 2016 of any developed country.
A responsible government would have sought to tackle these problems, as well as the climate emergency, with a series of aggressive investments in Britain’s future. As we commented on the missed opportunities in Sunak’s last Budget:
“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.”
It would have uprated benefits and public sector salaries at least in line with inflation; and if it wanted to raise taxes at all, it would have targeted big tax avoiders and taxed unearned income at the same rate as earned income.
It would also have intervened directly to protect its citizens from the rise in energy prices in the way that other governments have protected theirs:
- It would have imposed price caps – the French government has capped energy price rises at 4%; our price rises are expected to be more than 10x that figure because our government does not want ‘to deter investors’;
- It would have temporarily suspended VAT on energy – in Germany, the government has slashed a surcharge on bills used to support renewable energy schemes, which will instead receive extra state subsidies drawn from higher carbon taxes;
- It would have provided direct subsidies for households – as Italy has done.
But our government did none of those things.
Sunak has produced a budget which does next to nothing
Sunak uses all the right phrases, but enacts none of the right policies. He said on 22 March, that his Budget was focussing on “Delivering greater economic security for our people, accelerating growth and productivity, and making sure the proceeds of that growth are shared fairly.” Sadly, the Budget does none of those things.
The Resolution Foundation has concluded that this budget will make the UK’s problem of poverty even worse, with a further 1.3 million people being plunged into absolute poverty (which means that they would have been considered to be in poverty in 2010/11).
“the prevalence of absolute child poverty is projected to be higher in 2026-27 than in 2019-20, with a very large rise of 5 percentage points expected between 2020-21 and 2022-23.”
The Institute for Fiscal Studies concluded that the tax and benefits changes announced on 23 March would benefit only the higher income segments with those in the bottom actually worse off as a result.
Sunak’s Budget only works in the make-believe world of market fundamentalism
In the world of market fundamentalism, when a country faces a problem, its government should not act. Free markets deliver the best possible allocation of resources, so any government interference can be at best neutral and is likely to make matters worse. The best thing governments can do is to get out of the way: deregulate, slash taxes and spending, remove the bargaining power of unions and privatise all government owned activities. The evidence of the last 40 years has done nothing to shake the market fundamentalists’ belief in the magic of markets – perhaps because, although this is not a recipe for success for 99% of the population, for the top 1% it works very nicely, thank you.
Fortunately, and finally, people are beginning to realise the reality of what market fundamentalist policies are delivering to them and their families – unless they are really very wealthy they are facing declining living standards, as well as declining management of the environment and ever fewer democratic rights.
We still live in a democracy, and it is not too late for us to reclaim our country from the market fundamentalists.
If you think you might like to help or just to keep informed, please do sign-up and join the 99% Organisation. And if you feel moved to write to your MP to call for another U-turn by the government, these notes will help you.