“Fiscal policy” sounds boring and technical. But it is vitally important for workers, both individually and collectively. “Fiscal policy” means how taxes are collected (taxes on what and on whom, what rates of tax), and what spending is on the major items (revenue spending versus investment spending; health, social care, education, benefits, warfare, infrastructure, business subsidies, etc). The difference between tax revenue and total spending is what the government needs to borrow; borrowing can be from finance capital, or the Bank of England can buy the debt by printing money. We are talking big money here: state spending is currently around 40% of national output.
Fiscal policy has been central to parliamentary politics in the last few months. Truss’s super-right but poorly presented mini-budget caused finance capital to evict her from office (see my recent article on this website). Sunak is now planning a new budget that will increase some taxes but also make big cuts to spending. Spending needs to increase with inflation just to keep up the same (miserable) levels of spending as at present. So Sunak’s budget will have devastating consequences for the working class. This is therefore a critical moment for us in relation to fiscal policy.
In capitalist society, working class interests in fiscal policy are articulated through bourgeois workers’ parties; other workers’ organisations, particularly the trade unions, do not normally express a view. But my argument in this piece is that the Labour Party is now so neoliberal, craven, and clueless that other workers’ organisations need to put forward a fiscal plan.
Starmer’s deafening silence
Since Starmer was elected leader of the Labour Party 2.5 years ago, he has not put forward any plan or strategy for overall taxation policy, and not said anything about spending on the major services and overall. Eighteen months ago, he said that the shadow chancellor, Rachel Reeves, was drawing up a strategy on taxation. She is taking her time – it has still not appeared. Earlier this year, Starmer suggested a levy on the super-profits of the oil companies to raise £2 billion a year, which Sunak took up, claiming it could raise £5 billion. Starmer has recently proposed changing the taxation of non-domiciled millionaires in order to raise £3.5 billion per year, as well as taxing private equity funds. These sums are laughably small in comparison to the government’s annual spending of £900 billion.
There is potential for easily raising serious money from taxing capital and the rich. The 2019 Labour Party manifesto proposed increasing tax revenue from these sources by £83 billion a year with quite modest changes. £22 billion a year can be raised simply by increasing capital gains tax to the level of the high band of income tax (so that bankers and landlords cease to pay less tax than their cleaners). The Tax Justice Network says that £37 billion a year could be raised from modest tax changes for the rich. Taxation of the “excess” profits of the oil companies and energy suppliers arising from the Ukraine war could easily raise £50 billion a year, and similar sums from the banks, which are currently coining it from the rise in interest rates. Starmer cannot propose any of this because he is afraid of offending capital operating in, from, and through Britain, especially the dominant rentier sectors of capital.
But it gets worse. Because he will not increase tax revenue, Starmer has been unable to propose any increases in government revenue spending. (He has proposed spending £28 billion a year on green infrastructure, but that would be funded by government borrowing.) Thus, Starmer has not demanded massively increased funding of the public services as they slide into the abyss – an obscene silence. In contrast, the TUC has demanded an immediate 14% increase in spending on public services (roughly £70 billion a year) for them to simply stand still, to cover inflation in the cost of inputs and necessary wage rises.
Craven to capital, scabbing on workers
The strategy of being “responsible” with spending reached its bonkers conclusion in the summer when Reeves said that Labour could not renationalise the water companies because there was no money to do so. Reeves knows perfectly well that the cost of renationalisation would be carried out by borrowing, and that the lavish profits of the water companies would then make a profit for the government (which could be invested in desperately needed water infrastructure instead of handed out to shareholders). So the excuse that “the government doesn’t have the money” is just tosh. In reality, the water companies are far too powerful politically to have their shit (sic) profits slashed.
In recent months, Starmer has allowed shadow ministers to make micropromises for increased spending on particular services, presumably in an attempt to appeal to alarmed and critical voters. But so frightened is he of capitalist opinion that he will allow a promise of increased spending only if it is matched by a particular tax rise. This “matched funding” approach to fiscal policy is a recent innovation – of the Tories, who raised national insurance contributions in order to pay for increased spending on social care. This method of justifying increased spending on a specific service is deceptive: the government must calculate total spending in relation to total tax revenue. But the matched funding approach means that there does not need to be any consideration of what the service actually needs to operate effectively; the rise in spending on it is simply what the particular tax increase will raise, end of story. Step forward Wes Streeting, the shadow health secretary, who at the end of October made a commitment to an increase in the training of medical staff, to be paid for by changing the taxation of non-doms, (A month before, Rachel Reeves had said that this programme would be paid for by reinstating the 45p band of income tax – but then Sunak embarrassingly adopted that policy.)
Streeting’s plan to give the NHS an extra £3.5 billion is laughable. The NHS needs around £50 billion per year right away just to get back to the salaries and level of service it had in 2010, and to stop people from leaving the service. Sticking to his theme, Streeting went on to say that there is “no sustainable long-term solution to pouring ever more taxpayers’ money into a 20th-century model of care.” His “21st century” proposal was that better early diagnosis could save the NHS money. True. But even if money were provided for early diagnosis (he mentioned none), it could not possibly save enough to save the NHS. So he is happy to let the collapse of the NHS continue. To make it clear that he (Streeting) doesn’t give a damn about health workers, he went on to say that “the interests of patients must always come before the interests of providers,” that he will take on the BMA to make GPs work harder, and that he will be the “shop steward for patients.” What a hero!
A labour movement plan
So in fighting for massively increased taxation of capital and the rich and spending on public services, the Labour Party is not only useless, it is an enemy. To deal with the current crisis in public services, we need a tax and spend plan that has the broadest possible labour movement support. This could be initiated by the two campaigns that are now leading the class struggle in Britain: Enough is Enough and the People’s Assembly. Both now have individual memberships (and Enough is Enough has 800,000 already), a sign that they consider themselves embryonic political parties. They can get technical support from the Tax Justice Network. Most importantly, they can get the support of the major unions and the TUC (which appears somewhat open to this). With luck, some left-leaning Labour MPs might get involved.
The demands of a people’s fiscal plan could then be popularised through the membership of all these organisations. It could gain the support of tens of millions of people who are already in favour of better funding of public services but have no voice. And that could make a big difference to the fiscal policy of this government and the next, and thus to working-class lives.
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