Dominic Alexander analyses the Tory budget and finds that, as wages stagnate and a banking crisis grows, it promotes austerity and inequality

Jeremy Hunt’s budget was delivered today amid gathering signs that a new banking crisis may be about to engulf the world’s financial system. Following the bank failures in the US, there is now the crisis of the Credit Suisse bank and falls in European banking shares and stock markets. Although the UK managed, by the skin of its teeth, to avoid a technical recession at the end of 2022, the economy is still in stagnation territory. Despite optimistic claims that the British economy is doing better than expected, the OBR (Office for Budget Responsibility) still expects it to contract by about 0.2% this year, and the signs in the global economy are still dire.

Regardless of technical measures of the overall economy, our society is in real crisis due to the falling value of wages, with collapsing public services and a cost-of-living crisis. According to the OBR, there has been a 5.7% fall in disposable income over the last two years, which is the biggest drop on record. Wages are falling far short of inflation, with the public sector hardest hit, while growth at the higher end, in the finance and business services sector, is higher than the rest. Our unequal society grows ever more unequal, and the chancellor’s budget is set to accelerate the gap.

Austerity reigns

There was no real response to the crisis in the budget: austerity continues to crush the public sector. In terms of the cost-of-living, the three-month extension to the energy-price guarantee is the government doing the minimum necessary. Yet public services are in meltdown, with collapsing infrastructure, staff shortages due to low pay, and workers even having to rely on food banks to get by, with no help from the chancellor.

The bulk of spending will go to tax relief for business investment (over £9bn), another freeze on fuel duty, with £11bn for defence over the next three years. The UK’s defence spending is already the highest in Europe, exceeding even that of Russia. There is always money for war. Meanwhile, the government is spending £1bn on pension tax relief that will benefit only higher earners. It is a ‘a massive giveaway to already very wealthy people’, according to the New Economics Foundation.

Instead of these highly regressive measures, there was plenty of room to address the wages and funding crisis while still claiming fiscal responsibility. According to Paul Johnson of the Institute for Fiscal Studies, only £6bn would have been enough for inflation-matching pay rises – he quotes the same figure as the cost of the fuel-duty cut. According to the OBR (1.12), the forecast for government borrowing has been revised down from last November by £24.5 billion a year for 2023-4 onwards. The chancellor has, according to the OBR (1.13) accounted for just two thirds of this in the budget. Even according to the government’s own arbitrary rules, it was not fiscally necessary to continue on the budget’s destructive route against the public sector.

This then is not a ‘difficult’ economic choice, it is political vindictiveness. The Tory agenda is revealed here: they actively want to destroy the NHS, using the crisis, for example, to force people incrementally into private-insurance schemes. A privatisation agenda for education and other services similarly is at work. The absence of even token funding increases for sections of the NHS is somewhat surprising since the government appeared to be engaged in divide-and-rule tactics to break up the growing solidarity amongst different groups of striking workers. The plan is clearly to face down the strikes altogether.

Profitability

The orthodoxy of austerity is that without a return to growth, there is no room for wage rises or any rescue of public services. So, does the government have a realistic plan to deal with the long-term problems of the British economy? The answer is evidently no. The tax breaks for capital investment are the only major measure here, and while these are slightly more targeted than previous governments’ cuts to corporation tax or measures like quantitative easing, in itself it is not likely to solve the underlying issues. It is true that the aim is for investment in productivity. However, if this is left to the corporations themselves, little is likely to happen, any more than such measures have helped since 2010, since tax rebates matter little compared to profitability. It is profitability that has been the problem ever since the crisis of 2007-8.

The international outlook was already poor before the threat of a new banking crisis reared its head in the last week. The plans for investment and regeneration zones and levelling-up funds clearly lack any kind of overall planning or direction. Many of these kinds of schemes result only in high-end consumer hubs and low-paid service sector jobs, not the kind of industrial regeneration that would really change the shape of the economy.

The other measures are no more convincing. The extra, but inadequate and postponed, funding for childcare costs, designed to get mothers of young children back to work, will make only the most marginal difference to the labour market. It will do little for people’s standard of living, regardless.

As far as the climate crisis is concerned, Hunt’s priorities are all entirely in the wrong place. Funding for research into carbon capture and storage is a waste designed to kick the can of sustainable transformation down the road. It is unclear when, if ever, such technology will be viable, and it is just a means of allowing fossil-fuel companies to avoid the challenge of switching to genuinely green technologies. The plans for an expansion of nuclear power are even more wrongheaded. This is not only a dangerous technology, pace George Monbiot and other enthusiasts, but it takes an inordinate time for new plants to be built, and the cost is huge.

The government’s aversion to viable renewable technologies, wind, solar and tidal, is marked. A major plan of investment in these could both provide jobs and investment in those regions which really do need ‘levelling up’ investment, and make the needed sustainable transition far more quickly achievable. However, the ‘green new deal’ that would be required is clearly not attractive to major capital interests.

This is a weak budget with no answers to the major problems of the British economy. It offers only the most paltry answers to the cost-of-living crisis, and seems designed actively to deepen the crisis across the public sector. Instead, it gives more bungs to the wealthy, and to an investment-shy corporate sector. We desperately need a new direction, based on active state intervention to remodel the way our economy works. This will not come from parliament, but the government remains in a very weak position, and it is likely to grow weaker. This budget will not quell any of the doubts and dissention within the ruling class.

It should be clear to all workers now that any offers of negotiation in return for suspending strikes will not be backed up by any meaningful concessions over pay. The government plan is to stall and break up the momentum. It is vital that workers respond with greater levels of joint action and sustained strikes. Only that can force the government to back down. This austerity budget can be defeated, but the answer to it must come from organised workers on the picket lines and from the streets.