Miatta Fahnbulleh from the New Economics Foundation has provided a useful service in demolishing some of the myths peddled by Sunak in his budget.
Myth 1: We are well on our way to recovery with the fastest growth in the G7.
Fact: This is only because we had the biggest recession. The IMF says our economy is still 5% below its pre-pandemic path and is projected to lag behind all G7 countries in 2024.
Myth 2: We need to start balancing the books because we can’t afford to borrow any more.
Fact: At 6% of tax receipts, the cost of servicing the debt is the second lowest it’s been since WWII.
We could finance a massive green and social stimulus which would increase tax receipts and actually reduce borrowing.
Myth 3: We have to balance the books by the end of the parliament.
Fact: No we do not, the Bank of England bought up 99.5% of the debt the government borrowed during the pandemic. There is no such time limit.
Myth 4: Don’t choose to spend money on the climate, and it won’t cost you.
Fact: Delaying investment in #ClimateAction will cost us dearly in money & lives. The
@theCCCuk says we need to spend at least 1% of GDP on the #greentransition. The govt has so far committed only 0.01%.
Myth 5: The millions hit by the cut to #UniversalCredit will be helped by the rise in the national #LivingWage.
Fact: They won’t. Around 5 million people are being hit by the cut to UC. Only 2 million will benefit from the living wage increase. The new taper adjustment only helps about the same number. The majority will still get a big hit from the £20 a week cut.
Charts and graphs from official sources that back up these points can be consulted at the New Economics Foundation website.
The biggest myth that Tories, and to a slightly lesser extent, Labour governments hold onto is that there is a limit to how far governments can intervene in the economy. The Tories coined the phrase, there is no ‘magic money tree’ while Labour will invoke fiscal responsibility and not upset the ‘markets’. Billions were used to furlough workers or wastefully to pay for a useless test and trace system (sometimes to their mates) during the pandemic. It shows that governments can intervene very forcefully in the economy. . Certainly the climate emergency is as important, if not more, than the pandemic and requires massive investment. Sunak says he has no magic wand to deal with the global rise in gas prices but has given a lot of money to those same energy companies and to firms producing carbon dioxide. He used his wand to keep business rates down, cut corporation tax or take back the £20 from the poorest on universal credit.
The Tories coined the phrase, there is no ‘magic money tree’ while Labour will invoke fiscal responsibility and not upset the ‘markets’.
Governments always invoke the needs of the market or business profitability to justify certain decisions which they say have to be made. At the same time, they claim any positive economic events as a result of their brilliant management. The Tories even managed to claim the international financial crisis of 2008 was down to Labour mismanagement and the inevitable structural upturn in the business cycle was down to their economic competence. Both Tories and Labour accept the basic parameters of the system, that only a dominant capitalist economy can efficiently organise production and allocate resources in our society. Labour may want to tinker and adjust this to make it slightly more bearable for working people but it accepts those limits.
Although government decisions at budgets can affect working people negatively or positively and socialists always fight cuts and struggle for the fairest, most redistributive policies we should not forget that the real economic power remains in corporate boardrooms. These companies decide on the rate of exploitation, on whether to open or close workplaces, on firing and rehiring and on what to produce and sell. Budgets only affect government spending and taxation. Much of the spending does not even benefit working people but goes as ‘incentives’ or ‘benefits’ to capital in the form of tax cuts, grants or loans.
How the Media lies about the economy
How many times have you heard the presenters and pundits in the media use the term ‘tax burden’. If we were given a pound for each time it was uttered we would be quite well off. True taxes are disproportionately paid by working people rather than the rich. In that sense, they are an unfair burden on working people. But tax in economic terms is not solely a burden but is a key mechanism for providing collective provision for the common good. You might as well call it a tax contribution rather than a burden. Even if your taxes go to pay for the military to fight wars or go into the pockets of government ministers’ cronies on dodgy contracts it still remains a potential mechanism for good.
The ‘market’ and ‘competition’ is similarly rarely questioned in the media. You might have thought the disaster of the energy utilities might push one or two journalists to raise the question of whether common ownership (as we used to have) might be worth considering. Again you would have to look and listen for a long time to find those arguments put forward. Of course, it does not help if the so-called party of labour, who championed this course historically, refuses to defend such a policy.
When it comes to the climate emergency the media continues to lazily adopt the framework that counterposes the ‘needs of the economy’ to the ‘expense of ecological investment’.
At least in the 1970s or 80s, the TV Budget programmes always had trade union leaders to comment. To a degree, they pointed towards a different framework. Today they might give a minute or two to Francis Grady as the TUC leader. Much of the tabloid press focus on the minor changes to duties on alcohol or petrol, assuming that working people are only interested in that. So we have ‘fizzy Rishi’ headlines because prosecco may be a few pence cheaper.
The budget is more about politics than economics
In his article on this site about the real Tory economics, Neil Faulkner showed how this budget is an attack on working people’s living standards – a new version of austerity that dare not speak his name. However, how is Johnson trying to spin the budget to maintain the electoral base that won him power in 2019?
Johnson has imposed his line over Sunak and is concerned to present this budget as a break with Osborne austerity. A lot of voters bought the idea that somehow Johnson had nothing to do with the Cameron or May governments. Sunak and other Tories wanted less public spending and much smaller tax increases. Better than expected growth, less unemployment than forecast and bigger tax receipts have meant the government is able to increase public spending. In reality, the increased spending in areas like education has only meant a return to 2010 levels. Concern about education cuts fuelled unease with the Tories in the 2017 general election so this has not been cut in the same way as local authority spending. A much higher council tax is forecast.
When it comes to the climate emergency the media continues to lazily adopt the framework that counterposes the ‘needs of the economy’ to the ‘expense of ecological investment’.
Measures like the National Insurance tax increase will hit working people harder than the better off but the government presents it as necessary due to the unique, unforeseeable COVID crisis. Presenting this increase as funding the NHS and Social Care reflects public opinion willingness to accept such taxes. Johnson knows his base is much more hostile to welfare payments so the Universal Credit cut is maintained and only mitigated for some of those who work and receive the benefit. The budget is also framed as turning a page on the pandemic. Johnson’s pitch is always focused on a supposedly better future. Brexit voters tend to inhabit that worldview.
Like his conference speech, the budget wraps itself around the reactionary tory Brexit project. So Britain can now set its own duties on prosecco and closing the door on migrants is boosting lorry driver wages. British industry is subsidised in ways the government could not under EU rules. In reality, Brexit is proving to be a bigger drag on the economy than COVID according to the Institute for Public Policy. But Johnson knows that polling has shown consistently that his Brexit voters will put up even with economic consequences that hit their pockets as long as they believe in the myth that this is the tough but necessary way to be ‘independent’ and defend ‘national identity.
While average living standards will be hit hard – up to £3000 over the next 3 years – the impact is not equal for all groups. Given the undemocratic first past the post system the tories only have to win a bit over 40% to stay in power. Significant numbers of Johnson’s base are not as hard hit. People with assets have not been affected in anything like the same way as people depending just on their income. Landlords in particular have not suffered any more taxes. Looking at the Guardian feature on who wins and loses (28 October) pensioners are still favoured compared to other groups. The Tories win a big majority in that demographic.
Spending on transport and other infrastructure projects like free ports or new technology are being targeted at the ‘red wall’ seats where the tories have gained votes from Labour.
Despite anger from some of the more Thatcherite Tories and newspapers such as The Telegraph and the Daily Mail that this budget increases public spending too much and takes more taxes, Sunak has made it clear that they are planning tax cuts before the next election.
Consequently, Johnson is hoping that despite living standards being hit overall the ideological rhetoric of a post Brexit, and post-COVID economy with a claim of higher wages and higher productivity will protect him from any rebellion or loss of support. The effectiveness of such a narrative is helped by the timidity and moderation of the Labour response.
Labour’s tepid response
Labour spokespeople were correct to condemn the budget as all smoke and mirrors but there was little fire and even less of an alternative political project.
The failure to support their conference motion on a £15 an hour minimum wage and to stick to £10 means that the latest budget increase makes 50 pence the difference with the Tories. The spending increases in some areas are welcomed but Labour just demands a bit more. Increased growth is put forward without a clear redistributive challenge to the government or corporate capital. The problem with just saying we want more growth is that this does not really address the ecological imperative for zero growth and ignores the fact that more growth does not automatically produce a fairer deal for working people. Tubthumping about defending British manufacturing or buying British does not challenge the structure of the economy in any fundamental way. Labour had an open door if it proposed taking back the energy utilities into common ownership, a policy that can limit the impact of higher gas prices on working people. Ed Miliband was slapped down by Starmer when he proposed this. The urgency and scale of a green new deal was not really developed by Labour. The risk is that the moderation of their response will allow the false boosterism of the Johnson project to nullify any erosion of Tory support.
Nobody can foresee how the attack on living standards will change the political situation. History has taught us that there is no automatic link between falling living standards and either a decline in government support (remember Thatcher) or a progressive fightback.
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