Stumbling and Mumbling

Author: chris dillow   |   Latest post: Mon, 19 Apr 2021, 4:26 PM


The left after the Budget

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Labour's reaction to this week's Budget has been widely criticised. James Meadway accuses it of not offering an adequate alternative. He's right. But there are in fact profound flaws in the Budget which Labour should be pointing out.

One is the failure to address acute poverty. Sunak is planning to cut universal credit payments later this year. That, says (pdf) the Resolution Foundation, will be "disastrous for family incomes" and "bad macroeconomics" as it is taking cash out of the economy at a time when unemployment is likely to be high. This isn't an isolated error. In delaying the extension to the furlough scheme last autumn Sunak needlessly destroyed jobs. His failure to ensure adequate sick pay has not only impoverished people but jeopardised their health by compelling Covid-positive people to carry on working. And hundreds of thousands of the self-employed have had no help at all. This government is no friend to the economically insecure. Universal-Credit-UK-Logo-and-Rishi-Sunak-in-pictures-1376654

It is, however, heedful of grifters and cronies. Free ports are a gimmick that'll only divert jobs from nearby areas whilst encouraging (pdf) money laundering and tax evasion. The towns fund is a giveaway to areas with Tory MPs, and the business people who benefit disproportionately from it will in all likelihood be those well acquainted with those MPs. And super-deductions for capital spending will not only cause Amazon to pay no tax at all but encourage boondoggles in which companies spend government money solely to reduce their tax bill. When added to the PPE contracts handed out to cronies, all this adds up to a pattern. Governments often take their character from the Prime Minister, and Johnson is fundamentally dishonest.

There's also the failure to respond to climate change. We should read the freezing of fuel duty alongside the PAC's report that the government has no plan for achieving zero net carbon. There's a case for shifting taxes from incomes to carbon. The government misses it.

In planning a fiscal tightening for 2023, the government might also be tightening policy prematurely, which Simon says is "crazy." On current forecasts, it will do this whilst official unemployment is over five per cent - a figure which grossly under-estimates the slack in the labour market: there are almost two million outside the workforce who want a job and even before the pandemic there were millions of under-employed. The fact that the government feels the need to tighten at a time of mass unemployment is an admission that it believes full employment is either impossible or undesirable.

But there's something else. The OBR says that by 2025 the share of taxes in GDP will have risen to its highest since the late 60s. But we'll not have the public services to show for it. The Resolution Foundation says that "by 2024-25, day to day public service spending per capita in unprotected departments will still be almost one-quarter lower than in 2009-10." And even in the NHS, spending probably won't increase sufficiently to clear the backlog of operations created by the pandemic. We therefore face not only high taxes by a crumbling judicial system, minimal local government services, patchy social care and long NHS waiting lists.

We used to think we had a choice between high taxes and good public services on the one hand or low taxes and poor services on the other. The Tories are delivering the worst of both - high taxes and shoddy services.

A big reason for this is simply that the economy isn't growing fast enough. The OBR forecasts that after 2022's spurt GDP growth will fall below two per cent, one reason for this being that productivity growth will remain poor (and remember - the OBR has consistently been too optimistic about this in the past).

Which tells us that the Tories have failed to address our productivity problem. I've recently suggested ways to do this, but I'd highlight two of them.

One is to address the problem of high rents. These depress productivity for example by incentivizing speculation over productive entrepreneurship and by squeezing corporate and personal incomes. One solution to this would be to disincentivize such speculation by a land value tax. If the same tax were levied on an empty building as an occupied one, bargaining power would shift from landlord to tenant. (Of course, attacking rentierism requires more than the tax system: one case for more fiscal loosening is that this would raise interest rates, thereby depressing land prices).

It would be good economics as well as good politics for Labour to drive a wedge between productive business and entrepreneurs, forcing the Tories to show whose side they are on.

A further suite of measures to raise productivity would of course be to democratize the economy; we know that neoliberal managerialism has depressed productivity and that worker coops can raise it. As Joe Guinan and Martin O'Neill have argued, such democratization could have been part of an economic rescue package.

I mention these because they are lines of policy which the Tories, for all their flexibility, are incapable of following. As Phil says, the Tories flexibility is only "a means of defending the class relations they stand on." These class relations, however, lead not only to inadequate support for the insecure and to cronyism, but also to a failure to see both the need and the means to restore economic dynamism. The left should be pointing out that the Tories' class interests are part of our economic problem and cannot be the solution to it - a fact only highlighted by Sunak's Budget.

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