Philip Hammond claimed Britain was approaching ‘a turning point’ in his Spring Statement on 13 March. He fooled nobody. The Tory Chancellor said that the burden of public debt is forecast to start falling next year, allowing for the ‘easing of austerity’ not now but after his Autumn Statement. The reality is that the biggest annual benefits cut for six years is about to come into effect, hitting 11 million families, and three-quarters of the benefits cuts introduced since 2015 have yet to take effect. Far from the ‘light at the end of the tunnel’ Hammond forsees, the worst is yet to come. Brian Henry reports.
Describing himself as ‘positively Tigger-like’, Hammond said the Office for Budget Responsibility (OBR) had upgraded its growth projection in 2018 from 1.4% to 1.5% and lowered its forecast for borrowing in 2017-18 to £45.2bn from the £49.9bn predicted in November. But the Chancellor did not get the £10bn borrowing improvement many economists had predicted. He made the most of it anyway, claiming that he may have the capacity to enable ‘further increases’ in public spending next year.
The rarity of flat wages growth, as opposed to a fall, has been celebrated as like a rise. Average weekly earnings grew by 2.8% between November and January compared to the year before – matching the rate of inflation. The Resolution Foundation says 2010-2020 will be the lowest start-to-end decade of wage growth since the Napoleonic Wars.
The OBR predicts that the economy will grow by only 1.3% in 2019, 1.3% in 2020, 1.4 per cent in 2021 and 1.5 per cent in 2022. Over the whole period, the fiscal watchdog slightly reduced the amount of growth it thought was likely. Britain remains the second slowest-growing economy in the G7. Meanwhile, the national debt, twice as large as it was in 2008, is fast approaching £2 trillion and 90% of GDP.
Hammond hammered
Paul Johnson, director of the Institute for Fiscal Studies, was far from impressed with Hammond, saying that there was ‘not that much to be Tiggerish about. Growth forecasts are dreadful compared with what we thought in March 2016, dreadful by historical standards and dreadful compared with most of the rest of the world.’
Johnson said Hammond would have to impose tax rises of up to £41bn to meet his target of eliminating the deficit by 2025. Such a move would go against the Chancellor’s apparently ‘balanced approach’ of keeping taxes low and paying off debt. Johnson said taxes should be raised on the self-employed, who pay lower national insurance than employed workers, and owner-managed businesses which pay themselves in dividends. But, apart from in the case of business rates hikes, Theresa May’s government has so far cowed to the outrage of right-wing tabloids whenever it has targeted the Conservative Party’s petit bourgeois base.
This leaves a heavy reliance on a relatively small number of high-earning taxpayers, many of whom, Johnson warned, are considering relocating to Europe because of Brexit. Already since the referendum result, investment in the UK by overseas companies and individuals has fallen, from a £120bn surplus in the first half of 2016 to a £25bn deficit over the same period in 2017. The words of the former Bank of England governor Mark Carney, that Britain’s economy depends significantly on ‘the kindness of strangers’, ring ever truer.
Sowing illusions
Shadow Chancellor John McDonnell claims that a left-led Labour government would ‘end austerity’. But Johnson had strong words for the opposition as well, saying: ‘The reality of the economic and fiscal challenges facing us ought to be at the very top of the news agenda. And I mean the reality, not the spin and bluster of politicians on all sides pretending there are easy solutions, that the promised land is just around the corner.’
McDonnell’s claim is contradicted by the Labour manifesto from the 2017 general election, which pledged to reverse only one-fifth of benefits cuts made by the Tories. In September 2016 Labour introduced a rule into its constitution that meant any councillor who opposed or abstained from voting on legal – ie pro-cuts – budgets could be subjected to disciplinary action. Eager to assure the ruling class that he would be ‘fiscally responsible’ with the deficit, McDonnell says ending austerity would ‘not mean increasing day to day spending’ but investment in infrastructure and jobs in order to ‘grow the economy’. But without large increases in everyday spending the quality of public services will continue to deteriorate.
The reality is that fighting austerity means fighting for socialism. The global capitalist system is sinking ever-deeper into irreversible crisis. The British economy is 14% smaller than it would have been had it continued on its pre-2008 path, and with Brexit and another recession looming it will shrink again.
Any Labour government is going to have to find yet more savings. Effective opposition to austerity has to come from the working class itself, independent of and in opposition to the Labour Party.
Fight Racism! Fight Imperialism! 263 April/May 2018
