On 2 November, The Economist grimly forewarned that ‘The foundations for today’s growth look unstable. Peer ahead, and threats abound’. So it was that the Tory Chancellor Jeremy Hunt saw three main challenges to be met by his 22 November Autumn Statement: first, how to placate the right wing of his party before the 2024 general election campaign period opens, as they vociferously press for tax reductions; second, how to appease the broader electorate after a period of falling real incomes resulting from Conservative government austerity and more recent inflation; and third, how to keep to his rule of reducing the national debt within five years of his announcements. In short, the statement was a showcase of how to give with one hand and take back with the other. James Martin reports.
All this must be achieved within the real constraints of a near stagnant economy, with high interest rates, and with deficits both in the balance of international payments and in the state budget. Given that whatever happens it is expected that Labour will win the next election, Hunt has managed to design an economic quagmire for them to sink into.
Politically there was no way he would borrow more now. That will have to wait until the Spring Budget. Despite pressures from the hard right in the party, the international financial markets had already blocked the blindly arrogant ploy of the short-lived Liz Truss government in September-October 2022 which proposed massive borrowing to subsidise the rich. After 11 successive Tory growth plans, providing only 1.2% growth per annum since 2010, Hunt will sit on a ‘magic’ increase of £51bn in tax revenues by 2028/29 without raising tax rates. This leaves him with £13bn to spend without breaking his rule of reducing state debt by Year Five of his plan.
This extra tax revenue all comes from ‘fiscal drag’. This is the term for collecting more income tax and National Income Contributions as more employees are dragged into higher tax brackets as their money incomes rise. Thus, for example, 68% of pensioners also now pay tax compared to 50% in 2010. Four million lower earners, currently untaxed, will be dragged into the lowest income tax bracket by 2028/29. Another three million taxpayers will move to the higher tax rate.
State debts
Debt interest spending is at the highest level for 70 years, two percentage points above its longer-term trend of 2% of GDP. Estimated at £48bn per year in March 2022, it is now £109bn a year. Rising state debt staves off the economic collapse of capitalist economies, but interest bills are draining state budgets. With 25 tax rises having been forced through the current parliament, rising state debt (currently 103% of GDP) is at its highest since 1960. Britain had a state budget deficit of around 3.8% of GDP by the end of financial year 2022/23. Interest must be paid for, even if the loans are not paid off, by the British working class, combined with whatever plunder British imperialism can extract overseas. A reactionary foreign policy is thus an inescapable partner of any British budget.
What to do?
With an election in mind, Chancellor Hunt has ‘given away’ £19bn to be paid for, in part by fiscal drag, but also by reducing the real spending of ‘unprotected’ central government departments by keeping cash spending static despite rising prices. This loss of money’s real value, of about 3.4% per year in the medium term, will not be effectively compensated for in ‘unprotected’ government department budgets, ie those other than the NHS, schools, defence and the Foreign Office which remain fixed in real terms. This means a further seriously damaging squeeze on all other public service budgets and public investment in real terms.
Hunt was not going to raise income or sales taxes to reduce state debt, since that would push even more of the ‘middle ground’ electors away from his party in next year’s election. He was not going to shift tax bands up, since the working class would simply spend the money and supposedly cause a rise in the inflation rate, although it is companies that raise prices. He was not going to remove inheritance taxes either, since this tax brought in too little to worry about (wealthy persons incapable of tax avoidance have, after all, indolent children to protect!). On the other hand, by not including the big retailers, factories or offices in a freeze on business rates, Hunt will bring in £1.6bn.
Chancellor Hunt outlined his five grand aims: reducing debt, if we wait until 2028; cutting tax and ‘rewarding hard work’ (the real source of profit); backing British business; building domestic and sustainable energy; and delivering ‘world-class education’. In all this, cheerful forecasts are the balm that soothes the troubled capitalist, so potential GDP increases have to be celebrated – in this case 0.3% a year in the medium term, that is over five years, added to the supposed 0.2% a year created by the Spring Budget. Unfortunately, this is only half the EU’s own autumn prediction, and much less than the 1.8% that the Office for Budget Responsibility (OBR) had forecast in March 2023.
Despite a stated intention to increase productivity in the public sector, no changes have been proposed to the real spending on NHS or schools promised in 2022. This will mean, yet again, longer hours and more intense labour. Shadow health minister Wes Streeting, two days before the budget, backed the government and said Labour plans to ‘hold the door open’ to private healthcare companies to support the NHS. Streeting pleaded piteously on behalf of the profit hunters, asking indignantly ‘do those innovators then have to try and tout their wares one by one around every other NHS trust?’ For Labour, pouring money into a ‘broken system’ is a waste, and it aims to let yet more private sector ‘innovators’ into the queues for NHS budget handouts.
Making a show of supporting the poor
Ahead of his visit to Britain in November, Olivier De Schutter, the United Nations’ special rapporteur on extreme poverty and human rights, stated that poverty levels in the UK were ‘simply not acceptable’ and the British government was violating international law. Here is another reason for the Tories to abandon the European Court of Human Rights. 14.4 million people lived in relative poverty in 2021-22, a million more than in 2020-21. The Resolution Foundation forecast in January 2023 that the proportion of the population in absolute poverty would increase from 17.2% in 2021/22 to 18.3% in 2023/24, an additional 800,000 people, and would reach its highest levels since 1998/99 by 2027/28. One in six people in the UK received relative low incomes (relative poverty) before housing costs were accounted for in 2021/22, and one in five after housing costs were accounted for. In 2022 Universal Credit (or previous equivalent) was at its lowest real level in 40 years. De Schutter described the UK’s universal credit payments of £85 a week for single adults over 25 as ‘grossly insufficient’, as did his predecessor five years ago. In 2022, 3.8 million people were destitute (barely meeting their most basic physical needs), almost two and a half times the number in 2017, including about one million children.
Hunt consequently announced a cut in the main rate of Class 1 employee National Insurance Contributions (NICs) from 12% to 10% from 6 January 2024, rather than increasing it, as he suggested last January. Self-employed NICs are down from 9% to 8%. This will cost around £10.4bn, only about 20% of the increased tax take from fiscal drag over the five-year budget horizon. From 1 April 2024, the National Living Wage (previously National Minimum Wage) will increase by 9.8% to £11.44 with the age threshold lowered from 23 to 21 years old, to offset the fall in its real value between 2020 and the first quarter 2024. However, the OBR expects consumer inflation next year to be 3.6% which in real terms means no change from the National Living Wage’s 2020 real value. Universal Credit will rise by September’s annual rate of 6.7%. This won’t compensate for the over 8% annual inflation rate from the Spring 2022 to Spring 2023 period.
The Exchequer will temporarily raise Local Housing Allowance rates – frozen in 2020 – to values equivalent to those rents 30th from the bottom of the full range of local market rents in April 2024, barely catching up with rising ‘cheap end’ rents. Four in ten private renters need such help. Of course, governments must limit rent defaults or more workers will be homeless, and worse, landlords lose rent! So, landlords will get an extra £1.4bn tax payout from 2022/23 to 2024/25, in addition to the £15bn+ they already get, channelled through their struggling tenants. The housing shortage itself remains a disaster.
With a stagnant British economy, creeping global growth, and high interest rates affecting more mortgage renewals, real disposable income for families will fall by almost 1% in 2024, irrespective of the budget steps. Overall, the OBR admits that over the course of the cost-of-living crisis the drop in household incomes will be ‘the largest reduction in living standards since ONS records began in the 1950s’.
The unemployed
With a record 2.6 million people who are economically inactive through long-term sickness and disability, a post-pandemic increase of almost half a million, the state is keen to get all resident adults to work. The Work Capability Assessment will be toughened to lever as many sick individuals back into work as possible. While the politically contentious reassessment process is abolished, there is no more nonsense about being automatically deemed unable to work or look for work! Meanwhile the queues for NHS treatments get longer, proving that being healthy is not itself considered vital by the ruling class, as long as people ‘get up early in the morning… work nights… go the extra mile and work hard…’ as Hunt said in his Autumn Statement speech. More in-work employees now fall into poverty, and those poorer workers not unemployed through sickness are hanging on in work beyond state retirement age to make ends meet, whilst the wealthier salariat retire earlier. In 2020-21, for families that had someone who was working and disabled, 24% earned relatively low incomes before housing costs.
Investment
Investment in Britain has been 9.5% of nominal GDP for 10 years, behind all its key competitors. Now Hunt provides ‘full expensing’. The recent temporary 100% Year One tax allowance for depreciation of plant and machinery (50% for other long-life assets) is now permanent. One motive is quickly to write off fixed assets threatened with being stranded by the climate change disaster (storm, flood, etc damage). It also accommodates the more ruthless technical innovation, and faster turnover of capital, that the climate crisis forces upon businesses. Profits previously taxed are now immediately returned to cover new asset costs. New assets are recorded as fully depreciated by their owners, left with no accounting value, and so products contain less fixed accounting costs, and are cheaper. This also presents a higher rate of accounting profit for the firm during the real life of the asset. ‘Full expensing’ is a rescue package for the individual capitalist. This will cost the Exchequer nearly £3bn a year, so £15bn by 2028.
The poisoned chalice
If Labour wins the coming election, it faces local government bankruptcies, a state infrastructure at the point of collapse and has neither the desire nor the capacity to change the system. It will simply take over Hunt’s policies and the panoply of other anti-working-class measures currently entrenched by the ruling class, ineffectively responding to the irrational process of capital accumulation, which will provoke ever greater disasters and misery. Labour leader Keir Starmer has told us to take what is available or nothing at all. Labour is determined that matters will remain the same.
FIGHT RACISM! FIGHT IMPERIALISM! 297 December 2023/January 2024
