By Adam Peggs
This week’s budget, unveiled by Chancellor of the Exchequer Rishi Sunak on Wednesday, confirmed that the government is still geared toward tax cuts for the better off and market-oriented solutions. While the government has adjusted its economic direction since the Cameron-Osborne era, the marked shift in government policy expected in some quarters has failed to materialise.
Coming into this budget, the better than expected economic outlook has led the government to believe it had ‘fiscal headroom’, a misleading way of suggesting the exchequer has more capacity to spend than previously expected. After a decade of austerity this ‘headroom’ was mostly ploughed into tax cuts for banks, businesses, flight passengers and others, though workers face a notable tax rise. For all the fanfare about the Conservatives’ new economic strategy, it was striking that so little was ploughed into tackling the profound crises of the environment, in our public services and across society.
First, there is the extent to which austerity is already now ‘baked in’ – if austerity was anything, it was a project to shrink the welfare state. The budget contained little extra money for day to day spending overall, only a small concession on the £6bn a year cut to Universal Credit and little extra money for public services. The main exception was the additional capital funding for the NHS which will see an increase of £5.9bn. In light of the pandemic, staff shortages, unbearable workloads and the last decade of pressure on the health service, this will not be nearly enough.
On the tax side, announced in the budget was a significant cut to the corporation tax surcharge paid by UK banks, worth £4bn over 5 years. This, as Bloomberg noted on Wednesday, “shields UK banks from corporation tax rise”.
The tax cut is being justified in the name of ensuring the UK continues to be an internationally competitive financial centre. This follows the same logic, long held by UK governments, that the financial sector is the engine of the UK economy. This logic has led to decades of industrial strategy in which the economy has been geared toward financialisation.
Besides the tax cut for banks, Rishi Sunak also announced a raft of other tax cuts, including a year-long cut to business rates for hospitality, retail and leisure businesses, cuts to alcohol duty and air passenger duty for domestic flights and the cancellation of an increase in fuel duty. The cut to air passenger duty and freezing of fuel duty, along with the government’s plans to spend billions on road building, have led to justified criticisms of the government’s environmental policy. In the midst of an environmental crisis the government has opted to cut taxes on polluting activities, just after announcing a Net Zero strategy which had nothing to say on cutting emissions from flights.
Together, despite the rise in National Insurance Contributions and the increase in tax as a share of GDP, we are seeing an economic strategy which prioritises tax cuts over social security and public services and which fails to meaningfully address the climate emergency.
In an attempt to pitch the Conservatives as the party of working people, it was announced the National Living wage will rise to £9.50 an hour next year. This is then expected to rise further to £10.50 by 2024 – here, it is worth remembering the government’s previous pledge of a £9 minimum wage by 2020 was not reached. While a bigger than expected increase is welcome, there are two key caveats. First, the wait until April will feel like a long time for many struggling households during a period of rapidly rising energy prices.
Second, despite the ‘National Living Wage’ branding, this increase still falls short of a real living wage. It falls short of the rate set by the Living Wage Foundation and dramatically short of the demands for a good wage for all being put forward by trade unions like BFAWU, UVU and Unite.
For many on the lowest incomes, changes to the minimum wage will be more than offset by the over £1,000 a year cut to Universal Credit, even with Sunak’s limited adjustment to the taper rate – the rate at which increased income leads to Universal Credit payments being tapered back.
In an attempt to soften the blow in cutting Universal Credit, the government is also providing £82 million to local authorities for ‘family hubs’ which resemble New Labour’s Sure Start programme. In any circumstances, but especially after a decade of austerity in which local government has faced drastic cuts, an £82 million package of spending is small fry.
As part of the government’s effort to ‘level up’ Sunak also announced an additional £1.7bn for ‘small-scale’ projects. Given the UK is more regionally unequal than any other large wealthy country £1.7bn falls far short of what is needed – estimated to be around £30bn a year.
It will be little surprise to readers that the alternative we needed in this budget did not materialise. What would a different, radically fairer budget have looked like? Instead of cutting taxes for banks, businesses and domestic flyers, we might have seen significant above-inflation increases in spending across government departments. Instead of raising National Insurance on the vast majority of workers we ought to have seen Capital Gains Tax and tax on dividends raised to the marginal rates of income tax, so that income from wealth is taxed at the same rate as income from work. And to begin to address the UK’s grotesque levels of economic inequality, we ought to have seen the introduction of a net wealth tax and increases in income tax for those on high pay.
Instead of seeing fuel duty frozen, we could have seen tens of billions ploughed into a Green Jobs Revolution, creating well-paid, unionised public sector jobs in all regions. With utilities bills rocketing we ought to have seen key utilities brought into democratic public ownership with shareholders compensated at a reasonable rate, one that reflects the huge dividends already extracted from privatised industries.
We ought to have seen the reversal of ten years of budget cuts, so that social security, social housing, public services and local government can begin to be adequately funded. Rather than throwing money at policing and carceral solutions, we should have seen more money for youth services, social services and mental health support.
It is of course no surprise that this week didn’t see the bold alternative we so desperately needed. But what may surprise some is that the step change in the government’s economic strategy has largely failed to materialise. Instead lower taxes for favoured industries and polluting activities have continued to take priority over public services, welfare and green investment, while working people have been asked to pay more in tax while facing a higher cost of living.
Adam Peggs is a writer and activist based in Deptford, London.
Image: Rishi Sunak. https://api20170418155059.azure-api.net/photo/IoyxMWET.jpeg?crop=MCU_3:4&quality=80&download=true. Author: https://en.wikipedia.org/wiki/Chris_McAndrew, licensed under the Creative Commons Attribution 3.0 Unported license.
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