Labour’s October 2024 Budget was part of a rush of proposals and legislation aimed at, as Chancellor Rachel Reeves put it, ‘restoring stability to our country again’. Years of attacks on the state welfare system by successive governments, the growth of poverty for those both in and out of work, and the electoral reaction against politicians present serious challenges of control to the ruling class as it seeks to restore profitability. The Labour government intends to reassert the discipline necessary to maintain Britain’s imperialist status, starting with economic and social ‘stability’ at home. JAMES MARTIN reports.
Labour’s first five-year Budget aims to keep down the standard of living of the working-class, while stimulating investments of a higher technical composition to increase profitability, in an effort to reverse the decay of British capitalism. Better-off sections of the working class are protected as political allies, while the screw is tightened on the poorest.
The Budget’s two central features were a rise in Employer’s National Insurance Contributions (NICs) – a deduction from surplus value that has angered employers – and additional borrowing. These were inevitable steps given widespread anger at the disastrous condition of state welfare provision. Average living standards are not expected to return to pre-pandemic levels until 2027/28. The living conditions of a large section of the working class have been beaten down, while incomes for a privileged layer have been maintained.
Reeves’ balancing act
In total, up to £40bn per year of tax increases were announced for 2025-26. Adding an extra £32bn borrowing per annum enables £70bn annual spending for the next five years. Two thirds of this is to prevent the further collapse of social infrastructure and slow the further extension of poverty. However much of the extra spending simply offsets recent inflation of 6% in 2022, 11% in 2023 and 2.3% this year, rising to 2.6% in 2025.
Keeping the poor poor requires that the 2015 two-child benefit limit and the 2013 bedroom tax on benefits recipients are maintained. In September the winter fuel allowance was removed from 10.72 million pensioners. These ‘poor laws’ are central to disciplining the most beleaguered section of the working class, restricting their consumption, and forcing them to accept badly-paid work.
Pre-Budget, it was announced that VAT, income tax, Corporation Tax and National Insurance Contributions would be held at existing rates. More slyly, existing thresholds for income tax, unchanged since 2021, will remain until 2028. This silent ‘fiscal drag’ means many of the 17% of employed workers and the 27% self-employed who previously earned too little to pay income tax, will now pay tax if they dare win higher nominal wages.
£26bn of the £36bn extra taxes comes from raising employers’ NICs to 15% of workers’ earnings in April 2025. Despite the inevitable outcry from businesses, the reality is that over one million organisations will pay the same or less than before. Business in Britain remains more lightly taxed than their main European continental competitors. In any case, any fallout from NIC will be passed onto workers: the NIC bill is expected to fall to £16.1bn in 2029/30 once employers have sacked ‘unnecessary’ staff; the government has callously estimated average company savings of 50,000 hours. While the NHS, state agencies and charities have pleaded for exemptions, given the additional rise in the minimum wage as well as NIC increases, they will be forced to swallow the medicine, exacerbating their financial difficulties.
‘Social’ spending
At the same time, £379bn of the expenditure is earmarked for ‘social protection’, not capital investment. This reflects the bitter struggle within the ruling class over the role of the state. The Office for Budget Responsibility (OBR) warns that by 2030, state spending will be on course to reach 60% of GDP by 2070. To avoid this, the state must keep down working-class living conditions. The government has cut £5.5bn in its departmental budgets in 2024-25 (rising to £8.1bn by 2025-26) making it clear that this is ‘just the first step’ while it ‘identifies further savings’.
All government departments, health, education, social care, housing, prisons, the courts, local government and transport, have serious resource problems*. A limited repair job is needed to ensure a minimally healthy, sufficiently literate, and hopefully pliable working class. ‘Social protection’, personal social services, the NHS and education, making up £853bn of the £1.23 trillion spending for 2024-25, received more to offset inflation. Housing and the environment get £44bn yet ‘Defence’ gets £83bn.
The ‘unproductive’ working class
The poor, the long-term sick, the old, the unemployed, people with disabilities – such groups are seen as little other than an increasingly expensive burden on the capitalist state. So for example, while state pensioners get a 4.1% increase in April 2025, only the 2.28 million eligible for extended pension credit get to keep the winter fuel allowance. Additionally, the government saves £1.75bn by 2028-29 by continuing to charge the elderly with minimal lifetime savings for social care.
Single Universal Credit claimants over 25 now receive a miserly £400 a month. A couple get £309 per capita. Child benefit recipients get 40p more a week for the first child, and 25p for the second. Plans to remove 400,000 people from long-term benefit, sanctioning those who refuse jobs, is expected to save £3bn by 2029. The ‘Get Britain Working’ initiative, to ‘build a Britain where people who can work, will work’, targets the disabled and long-term sick.
Carers for the sick, disabled or old may now work additional waged hours to earn up to £196 a week before their £81.90 benefit is cut. Rents in social housing can, like rail fares, rise by 1% above inflation. With the cap on bus fares rising from £2 to £3 a journey, a grudging increase in allowances is vital to pay fares to work, so the National Living Wage is going up by 6.7% to a still-paltry £12.21 an hour.
Political gambits
To persuade the poor that Labour is on its side, a big show was made of removing charitable status from most private schools from January 2025, forcing them to pay VAT. Private jet passengers will be taxed more per journey. Inheritance tax exemption for untouched pension savings willed by the wealthy (except partners) ends from April 2027. Buying a second home now costs more in stamp duty. But however irritated, the wealthy will easily adjust.
From 2026 inheritance tax (IHT) will be paid on agricultural estates, at 20% only, paid over 10 years, interest free. The seven-year tax exempt gifts rule frees family farms, despite big landed interests portraying small farmers as victims to camouflage its own protest campaign. For non-farmers, IHT allowances remain frozen until 2028. This year only about 6% of beneficiaries pay this. Taxes on retail petrol remain unchanged, while there is a penny off a pint of draught beer for everyone to celebrate!
Financiers’ approval
The IMF approved the Budget. The Barclays Chief Executive considered it an ‘admirable job’ – after all there was no surcharge on banks’ profits or a tax on their balance sheets. Lloyds bank approved the budget a week in advance! Corporate profits as a share of GDP may be forecast to dip initially, but will climb again from 2025.
Ultimately as higher inflation after the budget more than offsets estimated real GDP growth, the poverty of the most vulnerable sections of the working class will deepen. For most other workers, the situation – whether in relation to housing, health, income or education – remains frozen as it is. This is the real meaning of Reeves ‘stability’.
Policy paper ‘Fixing the foundations: public spending audit 2024-25, para 4.4
FIGHT RACISM! FIGHT IMPERIALISM! 303 December 2024 /January 2025
