Jeremy Hunt Jeremy Hunt. Photo: Simon Walker / No 10 Downing Street / CC BY-NC-ND 2.0

Dominic Alexander looks at the Tory budget and shows how it is based on Tory election priorities which are not being challenged by Labour

This was a wrecking budget entirely focused on tripping up Starmer’s Labour along the road to the election. Focusing tax cuts on the well off, the Tories must be hoping to claw back some of their core voters who have gone missing lately, but this could only be done with some wafer-thin ‘headroom’ delivered by models of future government revenue.

It won’t take much to go wrong in the highly uncertain global economic outlook for Hunt’s supposed fiscal responsibility to be shred to pieces. This does all look like either a desperate gamble that the Budget can engineer a quick poll bounce, or a scorched-earth tactic to leave an incoming Labour government with a poisoned chalice of wrecked public services and government finances. Despite the apparent ‘Westminster consensus’ that the Budget reflected Hunt’s wish for a later election, so that there could be a new raft of announcements beforehand, it would now seem to be a huge gamble on the Tories’ part to hope for the situation to improve over the summer.

Fiscal illusions and fantasies

The 2p cut in National Insurance, doubling November’s cut, will benefit some in the middle-income distribution, but since tax thresholds remain frozen, many poorer people will be drawn into the tax regime, and others will lose as much as gain. One analysis says that only those earning between £27,000 and £59,000 a year will be better off due to the NI cuts, and other measures from November and today. ‘Those paid £16,000 would lose almost £500 a year, as would those receiving more than £60,000.’ The Office of Budget Responsibility itself notes that tax ‘as a share of GDP is forecast to rise to 37.1 per cent of GDP in 2028-29, 4.0 per cent of GDP higher than the pre-pandemic level’ (1.21), so this Tory tax-cutting is just sleight of hand once again.

Indeed, the OBR expects there to be one million more taxpayers at the basic rate in 2028 as a result of the ‘fiscal drag’ of frozen tax bands (3.39). There is also the effect the measure will have on discouraging people from taking on more hours; if it means you pay a higher rate of tax, is the extra work worthwhile? This is a real problem given the difficulty the economy has with the rising number of economically inactive people. The OBR expects the NI cut to result in a decrease of ‘labour supply by an estimated 130,000 in FTE terms by 2028-29’ (3.40), amid warnings about the impact of this problem on the economy.

In general, the OBR report is implicitly critical of the government, noting that its estimate of whether it will meet its fiscal targets has fallen to 54% from 56% in their November forecast. A prediction that the government has only slightly over a coin-toss chance of meeting its fiscal targets is not a vote of confidence. The Institute for Government said in February that the government’s fiscal plans are ‘worse than fiction’ because ‘meeting them would require substantial decreases in the quality or quantity of services provided by government which quite obviously neither party are prepared to tell the public they will deliver, because neither has spelled out where the axe will fall.’

The plan is for public-sector spending to remain only at the 1% rise promised in November. That the speculative reduction to a 0.75% rise did not materialise is cold comfort, because with inflation already having stretched public-sector institutions’ budgets beyond breaking point, we are still looking at catastrophe ahead. It is plain that the axe to save the government’s fiscal targets is falling on local council funding ‘Nearly one in five council leaders in England now say they are likely to declare bankruptcy in the next 15 months’. The devastating scale of the cuts being implemented in Birmingham, alongside a 10% rise in council tax, is just a taste of the meltdown likely to be reproduced across the country without emergency funding to prevent it. Any ‘gains’ some may make through the NI cuts will hardly balance out the death of local economies, collapse of public services and rises in council tax that all this entails.

Meanwhile, in ‘January 2024, the Prime Minister announced an additional £2.5 billion of military assistance for 2024-25’ for Ukraine, reaching a total of ‘almost £12 billion since February 2022’ (Treasury report, p.56). Rarely is the connection between imperialist war abroad and class war at home more blatant.

IT magic

Hunt’s budget has attempted to fill the funding chasm with a fantasy that investment in IT, particularly AI, will deliver productivity saving of an order which will more than make up for massive real-term cuts. Apparently, magic AI and apps will streamline the health service, and the police will be able to rely upon drones as first responders (Treasury Report, p.71). Apart from ludicrous Robocop fantasies, the detail, such as it is, on the use of AI depends on notions such as that AI can ‘automate back-office functions. By automating the writing and clinical coding of notes, discharge summaries and GP letters, clinicians will be able to spend more time with patients at more appointments’ (Treasury Report, p.65).

The reality is that using AI to produce paperwork presently done by humans will actually require training humans to learn how to ask a programme to produce such reports, and the estimate of productivity savings is entirely speculative. This is to say nothing of the quality of the results produced by AI systems. Richard Murphy of the Tax Justice Network suspects that productivity savings will really mean that ‘10 minute GP appointments will now last 7 minutes and school classes that lasted 40 minutes will now be 33 minutes long.’

That the government is indulging in this pervasive AI fantasy, which seems to be blowing up a worrying bubble in the financial markets of late, underlines the extent to which the Tories have entirely given up on trying to manage the economy in any kind of responsible way. Hunt seemed to be channelling Liz Truss when he insisted in the Commons that tax cuts lead to growth. What they might have done is boost the consumer spending of the well off, (if they hadn’t been overall negated by other factors), but they will do nothing to fix the long-term problem of low investment rates, which is the real problem that has plagued the British economy for decades now.

Hunt was also merrily ignoring the real economic issue that, never mind the technical recession at the end of 2023 (two quarters of economic contraction, however slight), the fact is that per capita GDP shows that Britain has been in recession since 2022: ‘Seven quarters of falling GDP per capita is the longest period of continuous decline on record (going back to 1955), while on this measure 2023 saw us go backwards by 0.7 per cent, rather than eking out marginal growth of 0.1 per cent in GDP terms.’ The economy has only registered growth in all this time because immigration has meant that the population has grown.

Worldwide, the signs are not encouraging. Germany has been in recession, as has Japan (less of a surprise), but, in addition, at least fourteen countries witnessed a shrinking GDP during the July-September quarter of 2023. Commercial real estate has become a real source of concern in the context of higher interest rates, with some commentators talking about a financial ‘time-bomb’ in the sector in both the US and Europe. For much of the last twenty-odd years, China’s growth has been the main engine driving the global economy, but it is certainly facing difficulties, and with the US seemingly intent on its trade war with the country, not to mention Ukraine and the Middle East, there are a host of factors which could mean a serious global downturn.

Britain’s already fragile economy is likely to suffer particularly badly if there is a global recession, or a financial crash due to a popping tech-stock bubble. Hunt and the Treasury can’t be unaware of these possible issues, so the only conclusion to be drawn from this fantastical budget of wishful thinking and hostages to the future, is that this is part of the Tories’ scorched-earth strategy. Wreck the country and get out of government fast, so that Starmer can be blamed when the pigeons come home to roost.

Whether the election comes sooner or later, with Labour set to stick to the Tory fiscal rules (contrary to received opinion, that is the real trap Labour has willingly fallen into, not any hypothetical promise to reverse Tory tax cuts), there is a real crisis ahead. Labour won’t save us; it is up to us to organise mass opposition to this social vandalism.

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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).

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