Budget 2018: No end to austerity

Anti-austerity protest

On 3 October, Prime Minister Theresa May made a series of promises in her speech to the Conservative Party conference. These included £20bn of additional funding for the NHS, and an end to austerity. Designed as a unifying message for the hopelessly fractured Conservative Party, these pledges had to be met by Chancellor of the Exchequer Philip Hammond alongside existing commitments that included eliminating the Budget deficit by the middle of the 2020s. Saddled by the lack of any certainty about the state of the British economy following Britain’s impending exit from the European Union, Hammond presented a different message. In his, much weaker, wording austerity is ‘coming to an end.’ In reality, three quarters of the benefit cuts planned since the 2015 General Election are still to come. Austerity is not ‘over’, and nor is it ‘coming to an end.’ Séamus Padraic reports.

In the run-up to the Budget, friction between the Treasury and the Prime Minister was clear. The day before the Budget, in an interview with Sky News, Hammond said that the measures to be unveiled in the Budget were based on the assumption of a Brexit deal, and that, in the event of Britain failing to reach a deal with the EU, spending measures could be scrapped in an emergency Budget. A Downing Street spokesman, however, was quick to contradict Hammond, stating that ‘All spending commitments that the Chancellor is going to outline today are funded, irrespective of a Brexit deal.’ Divisions over Brexit meant that Hammond delivered his budget in the face of potential rebellions by the 60 pro-Brexit Tories of the European Research Group (ERG), and the 10 pro-Brexit Democratic Unionist Party MPs on whom the Conservative minority government relies to win key votes.

The Office for Budget Responsibility (OBR), which is responsible for estimating total public spending and borrowing into the future, continues to refuse to revise its negative estimates of the impact of Brexit on the British economy from those it made in November 2016. Almost all economic forecasts predict damage to GDP growth.

Hammond, however, declared in his speech that he expected a ‘double-deal dividend’ in the event that Britain secures a deal. This will consist of the end of Brexit-related uncertainty and, therefore, allow Hammond to spend more of the ‘fiscal headroom’ that the British state has saved over the last eight years by slashing spending on public services.

Hammond was lucky on one front: the OBR announced that public spending would probably be lower by £11.6bn for 2018/19 than projected in the spring, and that by 2023/4 it would be £19.8bn lower. Hammond claimed responsibility for this forecasting improvement, boasting that the last eight years of Conservative government had created an economy ‘back on its feet again’ and ‘working for everyone’. As the Resolution Foundation, a centre-left Think Tank which focuses on low and middle incomes, has pointed out, however, this upgraded forecast must be put in the context of the massive downgrades from 2016/7: the ‘modest improvement in the latest projections make very little headway into this earlier downgrade’.[1] Even with the improved projection, GDP is expected to be £40.5bn lower in 2022 than projected in November 2016. The crisis-ridden British economy is far from ‘back on its feet’.

Paul Johnson, director of the Institute for Fiscal Studies, called the Budget a ‘sticking plaster’: meeting the new spending pledges will require raising taxes in the future (The Guardian, 31 October). Hammond is clearly delaying making any significant decisions until after Brexit. Instead, Hammond announced that ‘austerity is coming an end’: a hollow slogan, with no real content to back it up. 75% of the welfare cuts announced after the 2015 General Election are still to be rolled out. According to the Resolution Foundation, even after the changes introduced in this Budget, the share of GDP spent on ‘social protection’ (which includes welfare and national insurance, and stands at 13% for 2017/8) in 2022 will be 14%: down from 18% in 2010.

Tax and Benefit Changes

On Universal Credit, Hammond announced that this ‘long overdue and necessary reform’ is ‘here to stay’. He will provide £1bn to smooth its rollout and the work allowance, the point at which the recipient’s benefits are slashed, will be increased by £1,000, from £2,376 per year for those receiving housing support, and £4,908 per year for those not, to £3,376 and £5,908 respectively. As the Resolution Foundation has pointed out, however, the average £630 boost that this will provide to families on Universal Credit in part-time, temporary and insecure work will be only half of the amount that they lost from Universal Credit in the first place.

The 2017 Conservative election manifesto pledged to raise the basic income tax threshold, the point at which the lowest rate of income begins to be paid, from £11,850 to £12,500, and to raise the threshold for paying 40% to £50,000. This pledge will now be met a year early. According to the Resolution Foundation, 84% of the savings will go to the top half of earners, with 37% going to the top 10%. According to calculations by The Guardian (29 October), this ‘£3bn income tax giveaway’ will be worth £860 a year for a high earner, and £130 for someone earning £12,500. The Low Incomes Tax Group has suggested that the gain for low earners will in fact be closer to £48.10 for the year, as their Universal Credit payment would be reduced by £81.90. The millions of workers earning under £11,850 will not benefit at all. Considered as a whole, the tax and benefit changes introduced in this Budget will mean that the top 10 per cent of households gain £410, fourteen times the gains of the bottom ten per cent at £30.

The headline figures indicate that nearly all households will see some gain. However, this improvement is relative to the massive deterioration in living standards faced by the working class since 2010. The poorest fifth will be on average £400 a year worse off, and the richest fifth £390 better off. A part-time single parent on Universal Credit will be a staggering £2,910 worse off since 2015 in 2023/4.

The NHS

During her conference speech on 3 October, May repeated the promise, first made in July, of a ‘70th birthday present’ of additional funds for the NHS. In the Budget, Hammond confirmed an additional £20.5bn over the next five years, amounting to an average annual funding increase of 3.4%. NHS funding, however, must rise by 4% per annum to keep pace with the expanding population, the increasing proportion of elderly people, and the costs of new technologies and drugs. John Appleby, the chief economist at health charity the Nuffield Trust has pointed out that ‘most of the £20.5bn promised will be needed just to get the basics back on track – keeping up with rising need, addressing sliding waiting times, and fixing the worrying backlog of buildings needing repair’. After meeting existing commitments, says Appleby, ‘only £500m will be free next year for any improvements’ (Financial Times, 30 October). The Institute for Public Policy Research estimate that the NHS will require an additional £50bn per year by 2030. In other words, the NHS’s ‘70th birthday present’ is little more than a sticking plaster over the damage caused by a decade of chronic underfunding; underfunding which will in fact continue. To distract attention, and shift the blame, Hammond took the opportunity in his speech to attack ‘inefficiencies’ in the NHS, announcing that the NHS must produce a ten-year plan for eliminating them in the service.

Housing

Hammond also met May’s promise of lifting the cap on local authority borrowing to fund council housing construction. It is not only, however, a lack of access to credit that is restricting local authorities from building social housing. Rather, it is the skyrocketing price of land, which quadrupled between 1994 and 2007.[2] In the absence of a movement on the streets fighting for it, local authorities will have little impetus to build social housing, the cost of which they must subsidise.

Stamp Duty will be abolished for first-time buyers on properties up to £500,000, having already been abolished for properties up to £300,000 last year. Clearly, this will not provide ‘homes for sale to local people to buy, at prices they can afford’ (Hammond).

Other changes

The Budget also pledges a one-off direct payment to schools, totalling £400 million to buy, in Hammond’s words, the ‘little extras they need’ such as whiteboard erasers. Schools have lost £2.8bn of funding since 2010.

Another significant development is the end of Private Finance Initiative, a mechanism whereby private firms are contracted to do work in the public sector in return for inflated revenues drained from the budgets of public institutions. Hammond said that he ‘remains committed to public-private partnership’, but that he will sign no more PFI contracts, over 90 per cent of which were signed under Labour governments. Existing commitments will be honoured.

DUP alliance broken

During the parliamentary debate, on 19 November, DUP MPs voted against the government and with the Labour Party on an amendment to the Finance Bill, the legislation that approves the Budget. They abstained on five more, cutting the government’s majority to just five. The DUP’s Brexit spokesman Sammy Wilson explained that this was intended ‘to send a political message’ over Brexit (The Guardian, 20 November). This is a violation of the ‘confidence and supply agreement’ between the Conservatives and DUP on which May’s government relies. The following day, the government simply accepted two Labour and one Scottish National Party amendment to avoid holding a vote that it might have lost.

Fighting over the middle class

The lead-up to the Budget saw much speculation in the media that Hammond would ‘raid’ pension tax relief, by reducing the tax relief to higher-rate taxpayers, in order to fund the new spending commitments. In the event, however, Hammond dared not touch pension relief in this budget, which is designed to maintain the Conservatives’ middle class support, and stem the flow of the middle class turn towards the Labour Party.

Despite having labelled the proposed Income Tax cuts ‘callous’ before the Budget, McDonnell has pledged that a future Labour government would not reverse them. Appearing on the Today programme the morning after the Budget, McDonnell said that Labour did not want ‘to take money out of people’s pockets’.

For Labour to form a government, two conditions have always been necessary: a crisis in the Conservative Party, and a large swing in its favour from the middle class. The Conservatives are currently hopelessly divided, and the last election saw substantial swings towards Labour from the ‘C1’ and ‘C2’ sections of managerial and professional workers and skilled labourers who are beginning to see their privileged existence better secured by a Labour Party which has pledged additional funding for the public services on which those privileges depend. Conservative Cabinet ministers have told the Financial Times (1 October) that they ‘worry that unless the government begins to spend more on strained public services soon, the public will turn to a Labour government at the next election’. This Budget represents a concerted effort to court the middle class and relatively privileged sections of the working class who the Conservatives fear may abandon them for Labour. McDonnell is attempting not to be outmanoeuvred on this front: the Labour Party will not be outdone in courting the middle class. Their ability to form a government depends on it.


[1] All references to the Resolution Foundation are drawn from their report ‘How to spend it: Autumn 2018 Budget response’, https://tinyurl.com/yd7qp8gs

[2] Whose Land Is It Anyway?: Housing, capitalism and the working Class, https://tinyurl.com/yckuqe9c

 

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