Budget: no choice for the working class

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Every Labour budget since 1997 has been driven by one real consideration – to ensure that the coalition of forces that elected Labour into office remains on board. Labour has to be able to govern in the interests of banking and multinational capital yet keep the support of the professional, middle and upper working classes (middle classes).

Labour's first two budgets assured banking and corporate capital that British capitalism was safe in its hands. Monetary policy was handed over to the Bank of England and a ruthless fiscal policy put in place to slash the public sector deficit and reduce the level of public debt to national income. 'Enterprise' was to be promoted through tax cuts and privatisation. Policies were put in place to discipline the poor working class, and inequality continued to grow as Labour steadfastly stood by its promise not to raise direct taxes on the middle classes. This neo-liberal dogma was called 'prudence'.

Prudence, however, went a little too far and the rapid deterioration of public services, especially of health and education, began to unnerve the middle classes. An adequately funded and relatively efficient public provision of health and education is fundamental to their needs and they had expected this from a Labour government. So spending on health and education had to increase significantly, yet within the fiscal restraints determined by 'prudence'.

As the date for a general election drew closer the spending plans of Labour took centre stage. 'We have been prudent for a purpose: a stronger, fairer Britain' patronised Brown in presenting his fourth budget. Debt was being paid back, enterprise was being promoted, employment expanded, millions lifted out of poverty, spending on health and education dramatically raised 'not at the expense of our prudence' but 'because of our prudence'.*

In reality, Brown has been lucky. Economic circumstances over the last four years have been very favourable and no serious opposition has developed to challenge Labour. Yet Labour is still worried that in the coming general election millions of traditional Labour voters, alienated and disillusioned by the ever-present reality of decrepit and chaotic public services, government incompetence and sleaze, will not turn out to vote. The last general election saw the lowest turnout of voters since the Second World War.

Labour's fifth and final budget before the election needed to address this problem. The public promotion (spin) had to change. Prudence took a back seat (two mentions) and references to children and families took centre stage (93 mentions). The target groups in this budget were new parents, low and middle income families, pensioners and motorists. The aim was to get them out to vote.

Not much on offer!

Despite the favourable economic circumstances little was given away in this budget. The main beneficiaries to the tune of nearly £2bn were motorists. Last year's petrol price protests had frightened the government and they didn't want them repeated close to an election. The widening of the 10% tax band, the increases in working families tax credit (WFTC) and child tax credit (CTC), and other small tax changes cost a further £2bn and higher public spending, mainly for health and education, amounted to an additional £1.8bn.

The above inflation increases in state pensions of £5 for single pensioners and £8 for couples, to compensate pensioners for the insulting 75p rise last year, had already been announced, as had further increases for April 2002. A new pension credit is to be introduced in 2003 for pensioner couples with incomes below £200 and single pensioners with incomes below £135 a week. This will rise in line with earnings. The government is determined to resist significantly increasing the basic pension and tying that to earnings. As a result millions of pensioners will continue to live in poverty.

It is difficult for accountants let alone working people to keep up with the endless changes to taxation that are continual features of Labour's budgets and spending reviews. 59 tax changes were made in last year's budget, 13 in the November pre-budget spending review and 33 in this budget. The ideologically driven tax credits, Labour's form of means tested benefits, are not only difficult to understand but a bureaucratic nightmare to apply for and administer, involving extremely tedious application forms. Little wonder that 300,000 of the 1.4m expected to apply for the WFTC have failed to do so 18 months after its introduction and one million of those eligible to apply have so far failed to register for CTC, saving the government hundreds of millions of pounds.

The proposed pension tax credit was described by Age Concern's director general as creating a 'massively complex system and endless form filling for pensioners.' Indicative of the difficulty is the fact that out of the 2.4m pensioners contacted by the government about the existing minimum income guarantee for pensioners, a mere 182,000 sent in application forms and of these only 82,000 were accepted.

Deserving and undeserving

Tax credits embody the distinction between deserving and undeserving poor at the heart of Labour's reactionary ideology. Millions of poor people who do not work, particularly lone parents with young children, will not benefit from these tax credits. As a result, inequality will continue to grow with the state benefits of the poor rigidly tied by Labour to price rises and not earnings, which are growing faster.

Brown made a great deal about helping hard-working families – Labour's term for the deserving poor – in this budget. Extraordinarily, in his speech, he even included motorists in this category. WFTC will take the minimum income for a 'hard-working family' to £225 a week next October. A recent study of Europeans living in poverty confirmed that this is not even a living wage. Five million British people were found to have an income below what they needed each week to afford the necessities of life and half of lone parents with two or more children were said to have incomes below their absolute poverty level of £227 a week – £2 a week above the WFTC minimum. WFTC is effectively a subsidy to employers, allowing them to pay poverty wages and an incentive to workers to stay in such jobs. Not that those workers now have any choice!

In this budget Brown made it clear that Labour was making a decisive shift to the US workfare system, denying benefits to all adult workers who refuse the New Deal options. Those out of work will now have to undergo interviews about their readiness to work before being allowed to sign on. They will have to undergo tests and attend courses to improve their skills and literacy as well as to improve their attitude to work. This harassment will begin to be extended to lone parents with children under five on benefits. They will face an initial interview, another six months later and others at least annually afterwards. There is no compulsion as yet to seek work after the interview but the element of compulsion is clearly intended to grow.

Even worse than the Tories?

At the end of his speech Brown put out a challenge to the Tories: 'We have made our choice: more investment not less; stability the foundation; tax cuts we can afford; schools and hospitals first.' The reality is quite otherwise. Rather than tackle the real decline of Britain's public services, Labour, awash with funds from growing tax revenues, lower spending on unemployment and a £20bn windfall from selling off mobile phone licences, chose to pay £34bn off the national debt – 'more than all the total debt repaid by all the previous governments of the last 50 years.' Labour made its choice. It reassured the bankers.

Meanwhile, investment in Britain's crumbling public infrastructure in the first 11 months of this tax year was only £2.9bn out of an intended £7.4bn. This followed three earlier years when ruthless controls on public spending kept Labour's investment in the UK's infrastructure below the £4.7bn spent in the Tories last year of office. In addition in Labour's priority areas of expenditure, health and education, spending as a proportion of GDP is less than under the last Tory administration. From 1992-1997 the Tory government spending on health was 5.5% of GDP, compared to Labour's 5.4% since 1997. Similarly expenditure on education has fallen from 5% of GDP to 4.6%. Total public spending, at around 39% of GDP is still well below the 41.2% of GDP inherited from the Tories in 1997, a level that is unlikely to be met without a major change in policy in 2003-4 (40.5% projected).

This then is the achievement of a Labour government in relatively good economic circumstances. With storm clouds brewing as stockmarkets tumble and world economic growth rapidly slows down, the situation can only deteriorate. Labour has made its choice. It sides with banking and corporate capital against the working class.

* See FRFIs 138, 142, 144, 148, 154, 156 for articles on Labour's four previous budgets and two spending reviews.

FRFI 160 April / May 2001