Budget kicks can down the road
Today’s budget announcement has provoked more political and media discussion, debate and controversy than most in recent memory.
The main reasons for this are two-fold. On the one hand, because of the still devastating situation in which most working people still find themselves. In the midst of a third lockdown, with rising unemployment, millions are relying on furlough, Universal Credit and other schemes to make ends meet. For these millions, the run up to Sunak’s budget brought constant reminders of the potential cliff-edge facing them and their families.
On the other hand, this was a budget which finally began to raise the question which will dominate budgets and to a great extent, British politics in general, over the coming period: who will pay the bill for Covid-19?
In both these respects, the budget fundamentally resolved nothing. Regarding furlough and universal credit, the can has been kicked a little further down the road, with the insufficient current packages being extended for 6 months, at which point the cliff edge will again become visible.
Also, for all the Tories’ talk of “levelling with the public” and “honesty” about the British economy’s mounting debt and deficit crises, no real strategy to address these issues was outlined. Among other things, this reflects both the splits which are emerging within the ruling class about how to respond to this question, and the knowledge that after a decade of devastating austerity, the working class and young people in England, Wales, Scotland and Northern Ireland will not simply swallow being made to pay for another, this time even worse, capitalist economic crisis.
Needless to say, the budget contained nothing in the way of pay and conditions for the key workers who have been the backbone of society’s battle with covid over the past year.
Almost as striking as the Tories’ bankruptcy was that of Keir Starmer’s Labour “opposition”, which seemed desperate to use the budget to prove its capitalist credentials to big business, following the counter-revolution which has done away with Corbynism in the leadership of the party.
Never before in history has the crisis-ridden state of the capitalist economy shown so much the need for a socialist transformation, in Britain and internationally. Rather than holding out for crumbs in Tory budgets, the labour movement and Left must prepare for mass struggle and organization to defend the working class.
Sunak’s budget was accompanied by a forecast for economic growth by the Office for Budget Responsibility (OBR), predicting 4% growth in 2021 and over 7% in 2022. An improvement on prior predictions, this was hailed as grounds for optimism and evidence of the great British “bounce back” which is pending. But is such a rosy prognosis justified?
Of course, some measure of economic growth is inevitable as the locked down parts of the economy reopen and more money is spent, in the same way as two is always greater than one. But a closer look shows that this is not just an episodic “blip” in a rosy pattern of growth. Damage will be longer term, and the economy has entered a structural downturn that will not just be undone once lockdowns are over.
Even the OBR’s super-optimistic figures predict the economy will still be smaller overall than before the pandemic at the end of 2021. Once the benefit of restrictions being lifted has passed in 2022, they predict that growth will average at 0.4% per quarter, in effect a picture of stagnation. Most tellingly, in 5 years’ time they predict that growth will still be 3% of GDP less than it would have been before the onset of this crisis.
And let’s remember we are talking about the most optimistic predictions made for quite a while. What is the basis for this increased optimism? Important assumptions include that this will really be our last lockdown, and that new variants, or more monumental Tory mismanagement of the pandemic will not come back to rain on the parade.
The bigger picture here is that the British economy is plagued by fundamental problems, which were already pushing in a recessionary direction before the pandemic hit. Essentially, British capitalism faces a long term crisis of productivity and investment, caused by an especially parasitic capitalist elite which, especially since the Thatcher era, has sought to boost its profits by reducing wages and conditions and through financial speculation rather than by investing and producing more.
Moreover, following an era of deindustrialisation, the sectors which British capitalism has overwhelmingly based its economy – services and finance – themselves face especially challenging times, due to the combined impact of lockdown and Brexit.
Nothing in Sunak’s budget, or apparently in the minds of any section of the British ruling elite, resembles a recipe to tackle these deeper problems. There is no reason to expect that Sunak’s announced “super deduction” on taxes for companies which invest, will persuade big business to steer its billions away from bitcoin or other stock market speculation bonanzas – where far quicker and easier bucks can currently be made – any time soon.
Debt – a ticking time bomb?
The government used the budget and surrounding commentary to ring the alarm bells over public debt. This year, an unprecedented 17% of all national state income will be borrowed. Next year, the figure will still be over 10%, which will exceed any other year on record apart from this one or during the World Wars.
Not only does this build up the budget deficit, but also places longer term burdens on the public finances, some of which are also subject to volatility, such as interest rates which have remained at an historically low level for some years now. Sunak explained in pre budget interviews the dramatic impact which a 1% increase in interest rates would have on the UK budget deficit, costing an extra £25 billion per year.
While worldwide, central banks show no signs of raising interest rates in the short term, the fear of inflation (which is now becoming the subject of more discussion among economists as hyper-inflation is crippling the Lebanese economy) means such a prospect can come back onto the agenda.
And it’s not just public debt that the British economy has to worry about. Already before the pandemic, a mountain of household and corporate debt was stalking the country. And the pandemic has turbo-charged the problem. Households who have taken advantage of “mortgage holidays” have seen their debts pile up, and over 700,000 more Universal Credit recipients are unable to cover rent payments . The pandemic has also given birth to a new generation of “zombie businesses” kept alive only by state-backed Covid loans (which Sunak has clarified must indeed be paid back).
This all points to the prospect of a new financial crisis, which would hit both the public and private sectors hard, already in a very weakened state. Indebtedness is a major potential spanner in the works of Sunak’s hopes for a consumer-driven, “growth led” recovery.
Tax rises – making the rich pay?
The budget saw future rises announced in corporation tax, and the freezing of personal tax allowances.
Framed in the media as an attempt to make the wealthier pay for the crisis, the corporation tax rise to 25% in 2023 will still leave the rate 10% below it’s UK historical average and as the lowest rate of any G7 country, as Sunak was keen to point out.
This didn’t prevent it being controversial, both among Tory libertarians and Keir “now is not the time” Starmer. Indeed, a hot-under-the-collar Tory MP told the Guardian “It’s close to Jeremy Corbyn territory”, referring to Corbyn’s promise to raise the rate to 26% over the course of a government term, dubbed loony left madness by the political establishment. Johnson’s government’s embrace of such a policy is, of course, a sign of changed times, in particular of the undermining of the unquestioned neoliberal dogma which dominated both Tory and Blairite thinking and policy making for decades.
However, in reality Sunak’s new policy does not even scratch the surface of what a real programme to make big business pay would look like. He also steered clear of moves towards a “windfall tax” (a special tax on those who made big profits during the pandemic) which even right-wing capitalist economists had been urging.
Furlough and Universal Credit cliff edge
Almost a year after its inception, there are still 2-3 million jobs which exist only due to the furlough scheme, according to most estimates. Sunak extended the scheme until September, to begin winding down in July. But for these millions of workers, who face being thrown back to the mercy of a shrinking labour market, the fear of unemployment in the autumn remains.
In the context of uncertainty, and lasting damage to several key sectors (such as hospitality, tourism and aviation) which employ millions, a “big bang” withdrawal of furlough risks a big bang of mass unemployment. It has already been demonstrated that job losses in this crisis have disproportionately affected young and BAME people, accelerating the growth of inequality in British society.
The situation is similar for those claiming Universal Credit, with the terrifying prospect of the withdrawal of the £20-per-week “uplift” only delayed until September. Already a key issue in public discussion and debate so far this year, this issue can be a major battleground in the coming months, which the labour movement needs to forcefully take up. The fact that right wing Tory MPs like David Davis who cheerleaded the grotesque benefit cuts following 2010 have come out in favour of a permanent “uplift” shows the strength of working class public opinion on this issue. Gone are the days when the Tories could lean on their toxic “benefit scroungers” narrative to make attacks on the most vulnerable and needy.
Labour’s loyal (to the system) opposition
It was in this context that the Labour Party spent the most part of the last week criticising the Tories – from the right. From opposing increases in corporation tax, to refusing to commit to an indefinite Universal Credit increase, Starmers’ leadership seemed to be in overdrive, desperate to prove itself to the system as a safe pair of hands.
This follows perfectly the logic of Starmers’ loyal “constructive” opposition so far, as he aims to court a phantom right-ward moving electorate: refusing to back teachers’ unions fighting for a safe reopening, denouncing BLM protestors, and opting for nauseating flag-flying “patriotism” over real proposals for fundamental change.
When Starmer won the Labour leadership, Socialist Alternative warned that the counter revolution he wished to carry out would, if successful, make the Labour party unfit for purpose as a vehicle for working class resistance in the 2020s. The unfortunate confirmation of this perspective could not have been clearer than during Budget week. We need a new mass Left party for the struggles to come.
This new profound crisis underlines the need for the movement to go further in our programme. In a situation where the Tories have been forced to mobilise the “fiscal firepower” of the state to such a degree, de facto enacting parts of Labour’s 2017 and 2019 programmes, it is not enough to merely demand they go a little bit further, or raise corporation tax a little bit higher. Our movement needs a socialist programme, to make the rich pay, and to transform the economy along socialist lines.
Battle of the 2020s: who will pay the bill?
This budget brings the total cost of pandemic relief packages so far to over £400 billion. As Sunak himself, and the hoards of right wing commentators are beginning to remind us all ad nauseum, this is a bill that will need paying for. A bitter battle over who pays, and how, will be the overriding framework of the class struggle over the course of the 2020s.
The working class and young people cannot expect this, or any future Tory budget, to protect our interests going into a decade defined by the deepest economic crisis since the Second World War. While this government will not revert to neoliberal “business as usual” austerity of the Cameron/Osborne brand, this does not represent a change in the colour or class position of the Tory party.
This or that crumb may be thrown our way, out of fear of political oblivion, and in the interests of propping up demand for the profit making machine. But make no mistake, in the long run, the “solution” to the economic quagmire which this government will pursue is one which aims to protect the profits of the billionaires at our expense. The last decade has shown us that there is no economic “national interest” – economic policy will ultimately benefit either the super rich, or the working class majority.
Our interests can only be protected in this period by our own endeavour – through the strengthening and rebuilding of the labour movement, and by organization, mobilisation and struggle bringing together fighting unions, social movements like BLM and the climate strikes, and the struggles of women, LGBTQ+ people and all the oppressed. Our movement needs its own programme, its own way out of this capitalist crisis, which puts the needs of working people first. No back to the Tories’ “normal” of misery and inequality.
From invisible hand of the market to “fiscal firepower” – we need socialism
Our world is immersed in a perfect storm of crises – health, economic, geopolitical, climate… Each and every one of these point to one thing: the notion that the all-powerful “self-regulating market” can meet the needs of people and the planet is in tatters. Staring into our second devastating world recession in 12 years, the policies and ideology of free market capitalism are in disarray.
From a triumphalist faith in the “invisible hand of the market”, governments all over the world are turning to the guiding hand of the state. The whole house of cards that is the capitalist economy is left standing only due to this factor. In 2020 Britain, 57p of every single pound spent was spent by the state.
However, rather than draw the logical conclusion that would benefit humanity – assign the “market” to the dustbin of history and make public ownership and socialist planning the motor of the economy – the bosses’ agenda is merely to use the resources of the state to get the profit machine back up and running, preparing the ground for new and worse crises.
The situation is crying out for socialist policies. A working class government could seize the wealth left idle by speculating billionaires via bold taxation and put it to work in mass green jobs, housing, transport and infrastructure programmes. Instead of wasting money on “incentivizing” private companies to invest (in vain), it could take the banks and major corporations into public ownership and use them to drive a plan for sustainable economic growth, to benefit the majority, and not the profits of the 0.1%.
This is the vision which needs to be put forward by the labour movement and Left in the 2020s. Join Socialist Alternative if you agree.
- Full pay for all workers either furloughed or working from home for their own safety! Workers’ control over reopening to put safety and working people’s needs first
- For benefits that reflect the real cost of living and which don’t leave people struggling in poverty. Scrap benefit sanctions. For job creation and the right to work for all who can
- For a £12 an hour minimum wage as a step towards a real living wage of £15 an hour. Full sick pay, holiday pay and pensions for all!
- Key workers deserve a pay rise! Scrap the public sector pay freeze! Fight for a 15% pay rise for NHS workers
- Take the wealth off the 1%. Nationalise the major banks and the top 100 monopolies that control around 80% of our economy, under democratic workers’ control and management
- Support workers fighting back around the globe – build solidarity and unity in action
- For a socialist world – free from war, poverty, exploitation and oppression