Who benefits from the 2010 Budget?

By Nicky Dempsey

The 2010 Budget was not designed to aid the recovery from recession, or help narrow the public sector deficit or even boost New Labour’s electoral prospects at the forthcoming general election.

A useful analysis of the Budget measures can be found here. The most telling aspect of it is a complete reversal of the 2009 Budget stimulus measures. These amounted to £50bn in increased spending over the previous year, £26bn of which was an increase in discretionary spending, not just upward pressure on spending arising from the recession.

Crucially, this spending increasing not only softened some of the worst effects of the recession, but also served to boost government finances. The public sector deficit for the financial year just ending is £11bn lower than the Treasury forecast, made as recently as December. Of that, £7.5bn is directly attributable to the spending increase, especially the stimulus.

Even though this was a smaller stimulus package than most industrialised countries, it was effective. The Treasury estimates that the deficit will be lowered by £53bn over the next 5 years as a result, with further returns set for beyond that.

Despite this clear verdict that fiscal stimulus measures work, Chancellor Darling announced a net fiscal tightening of £8.5bn in discretionary spending as well as a much lower real increase in automatic spending. Colleges, universities, hospitals, railway development, public pension pensions are all being squeezed already. Worse, the Chancellor promised immediately after the Budget that spending cuts would be “tougher than Thatcher” in future years.

This amounts to economic sabotage of recovery prospects and of the improvement in government finances. The statements, along with others made by the Chancellor and others in the Blairite wing of New Labour amount to political sabotage of the government’s electoral prospects. The two are related.

The economic slump is led by a collapse in investment, which in Britain accounts for nearly 60% of the decline in output. Business is on an investment strike. It will remain so as long as profits are not boosted back to what the holders of capital deem to be acceptable levels. Business investment fell again the final quarter of 2009, even though other sectors of the economy show modest signs of recovery. The government’s own forecasts are for a further decline in investment in 2010.

In this scenario, the government could and should step in to invest on its own account. As the effects of the 2009 Budget show, this would aid recovery and boost government finances, as the return on the investment would be a public not a private one. But from the perspective of the Chancellor and his Party supporters, the Business Secretary, the Opposition parties and almost the entirety of the media, this would represent a grievous blow. An increased proportion of the means of production would be in public hands, reversing the trend of the last three decades. And the ability to generate profits would be somewhat curtailed.

The greater priority for the Chancellor and his allies is to recover as much as the economy as possible for the private sector. This is the aim behind using taxpayers’ money to prop up banks in readiness for renewed privatisation. It is the content of the Budget. And, for them, it is clearly a greater priority than getting New Labour re-elected.