People out in protest against Tory inaction on the impending Cost of Living crisis in February, 22. People out in protest against Tory inaction on the impending Cost of Living crisis in February, 22. Source: Alisdare Hickson - Wikicommons / cropped from original / shared under license CC BY-SA 4.0

Hunt’s budget attack on working people assessed by Dominic Alexander

Budget November 2022

If we needed an indication that capitalism is in very severe trouble, then Jeremy Hunt’s budget is certainly it. It is projected that there will be an entire parliament of zero growth, which is unprecedented in modern times. More importantly, millions will face a winter of extreme hardship. Pensions and benefits will not rise in line with inflation until April, when in any case there will be a £500 rise in the energy-bill cap. The freeze on tax thresholds will disproportionately hurt those on lower incomes, who will already be facing steep rises in costs. Many of the tax rises are being deferred until later on, in the hope that they will seem to matter less if the economy is in recovery by then, but for many the crisis remains in the present.

Despite the Daily Telegraph’s wailing that it is tax rises ‘on the wealthiest’ that are funding the rise in pension and benefits to match inflation (or just about), according to the Treasury itself, 55% of households will be worse off regardless. It is not those with the ‘broadest shoulders’ who will suffer the most, but those with the least resources, who are facing a horrendous winter with minimal support on offer.

Stealth austerity

The Treasury analysis claims that the poorest households will benefit most from the budget, but that conclusion is based solely on keeping pensions and benefits up to the rise in inflation. That is simply the minimum needed to avoid social catastrophe. Public services faced cuts of £43 billion due to inflation, and Hunt’s minor spending promises will, in effect, merely continue austerity. For the NHS, £3.3 billion has been given, when there is a £7 billion hole in its budget. Effective cuts such as this will hurt those who depend on public services even further, making the Treasury claim totally absurd.

The expectation is that the economy will be in recession for the whole of the next year, meaning rises in unemployment, and even further pressures on wages. In these circumstances, the programme of continued austerity digs the hole deeper. There is far more the Chancellor could have done to tax wealth to make up for this, but despite ‘disappointment’ from the right, he has chosen to attack public services and those on low and middle incomes instead.

Yes, there are plans for a rise in the national living wage, cost-of-living payments and other targeted help for the ‘most vulnerable’, but these doesn’t kick in until April, and will not fully cover the rises in costs in any case. The Office for Budget Responsibility predicts that household income will fall by 7%, apparently the biggest fall in record, one with which will be hardest on those with the smallest financial margins to cope.

The austerity plan

The government’s main plan was evidently to reclaim the mantle of ‘fiscal responsibility’. The initial market reaction has been negative, with the sterling falling 1.1% against the dollar and yields on government bonds increasing, meaning the cost of government debt is actually rising in response. However, that could change, and the budget received a positive reaction from Moody’s, the international credit-rating agency, which said that the it showed the ‘UK’s commitment to fiscal prudence after the UK’s policy credibility weakened following September’s fiscal statement.’ It remains to be seen whether the markets will help the government out through lower costs for borrowing, and higher confidence in sterling.

The main policy aim that was being trailed by Hunt was the specious claim that in order to combat inflation, a budget of austerity would be necessary. To an extent, this build-up was meant as political sleight of hand to soften us up so that the actual measures would appear as a relief. It’s been noted that the fiscal black hole is an accounting invention. However, any relieved reaction to what might have been should be tempered by an understanding that the budget measures do nothing to attack the real causes of inflation, which are widely admitted to be due to supply problems.

Austerity is not an answer to these, since the suppression of consumer spending does not solve those issues. It will, however, drive the economy further into recession. Moreover, sucking demand out of the economy will drive down government tax income, as activity contracts. The result is most likely to be a higher government deficit, increasing the worse the recession gets. Austerity in the 2010s did not bring down the deficit and it won’t this time either.

The calculation must be that the result will still work for financial interests in the City, even if the rest of the economy suffers. There is a political calculation also that if interest rates can be kept down as a result of austerity, then the mortgage costs of the Tory voting middle class will be lower. However, with a long recession and rising tax rates for many of those same people, the basis for a Tory recovery rests on a very narrow basis. Few on the left will shed many tears about this, but the point is that it shows the depth of the impasse to which capitalism in Britain has arrived.

There are always alternatives

There is no need to remain trapped within the exigencies of an economy geared towards the financial-services industry based in the City of London. Both Truss’s mini-budget and this new budget were, in their different ways, directed firmly in that direction. Tax Justice UK helpfully lists £37 billion worth of wealth taxes which could have done much towards supporting public services and protecting working people from tax rises in a cost-of-living crisis. Jeremy Corbyn, in parliament, suggested that rent controls in the private sector could have been introduced, which given the staggering rise in rents, would do much good, at little cost to the government.

The government may not have slashed capital spending as much as was speculated, but there is no sign that its spending is being directed strategically for the right ends. Tessa Khan points out that ‘Hunt has failed to close the gaping tax loophole that allows companies such as Shell to avoid tax if they invest in new oil and gas fields.’ The government loses billions in tax thereby, while doing nothing to build an ecologically sustainable energy structure, which could also save the economy a great deal in the long term.

There is much else that could be said about economic alternatives, but the vital thing to focus on now is how to fight this attack on living standards. The working class will suffer the most directly from all this, but an even larger proportion of the population will be unhappy. Some in the ruling class appear to be concerned about this.

For example, despite the credit-rating agency Moody’s technical approval of the budget, it also expressed some scepticism that the measures could actually be maintained. It noted that the ‘polarised domestic political environment and heightened policy unpredictability may undermine efforts to deliver on fiscal consolidation, particularly in light of strong social and political pressures on government spending.’ This seems to be a remarkably forthright warning that the political situation is very perilous for the government.

In circumstances of an unprecedented decline in living standards, the prospect of one of the longest recessions in living memory, and a decimation in public services that matter to the great majority of people, the prospect for resistance is high. These are the circumstances in which working-class militancy has the potential to lead a mass rejection of the current direction of capitalism. The times are demanding that a radical economic alternative is forced onto the agenda.

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Dominic Alexander

Dominic Alexander is a member of Counterfire, for which he is the book review editor. He is a longstanding activist in north London. He is a historian whose work includes the book Saints and Animals in the Middle Ages (2008), a social history of medieval wonder tales, and articles on London’s first revolutionary, William Longbeard, and the revolt of 1196, in Viator 48:3 (2017), and Science and Society 84:3 (July 2020). He is also the author of the Counterfire books, The Limits of Keynesianism (2018) and Trotsky in the Bronze Age (2020).