A high-risk gamble for these Tories, but a safer one for their project

Kwasi Kwarteng

By Martin Brady

The reaction to the Tory ‘mini-Budget’ on September 23 has ranged from hostility to panic from liberal commentators and financial markets. The scale of the response matches the scope of the measures, which entail an enormous shift of resources and incomes from workers and the poor to big business and the rich. There has been talk of emergency meetings of the Bank of England as well as letters being sent in expressing no confidence in Liz Truss by Tory backbenchers.

Clearly, this is a high-risk political strategy when the government-engineered attacks on living standards are already deeply unpopular. The backbenchers are justifiably concerned they will lose the next general election.

However, the Budget and subsequent measures are intended to be transformational; a major step on the road to thoroughly ‘Americanising’ the British economy with low taxes, low wages, privatisation, deregulation and union-busting that are already designed to boost the profit rate. As such, the notable voices in support of the measures were all the main business organisations.

This Tory leadership assumes that they will be successful in raising the economic growth rate. They are unlikely to be successful. Doubling down on an unsuccessful policy rarely is.

But their hope is that the Labour leadership will not offer any serious opposition to these measures prior to the election, or that it will not overturn them if it wins office. Here, the Tory assumptions are better grounded.

Scale of the attack

The scope of the tax and spending measures outlined in what the Tories insist on a calling the ‘Growth Plan’ are extremely large. But they are not unprecedented. Both the bailout of the banks and the fiscal support measures (mainly directed to business) during lockdown were larger.

Crucially, though, this package was introduced on the heels of these two major changes to fiscal policy, when the economy was already experiencing ‘stagflation’ (simultaneous inflation and stagnation) and government finances were already sharply deteriorating.

Kwarteng’s announcements of huge tax cuts for the rich and further deep cuts in real wages will only exacerbate these trends. The negative reaction in the main financial markets will only reinforce those trends, with the falling pound adding to inflation, and rising interests on government debt increasing the costs for all types of borrowers and so weaken the economy even further.

The total package of measures is estimated to cost £160 billion over the next 5 years. This is equivalent to just over 8 per cent of current annual GDP.  The Treasury table below itemising the tax and spending changes is reproduced to clarify the allocation of the funds.

Fiscal policy decisions in the Growth Plan

Source: UK Treasury

Roughly three-fifths of all the measures, around £100 billion, relate to tax and National Insurance cuts which numerous commentators have pointed overwhelmingly favour the rich. One of them suggested that only those earning over £155,000 a year would be better off when all the measures were taken into account.

The remaining two-fifths are simply measures to cut taxes on business profits. Other commentators have pointed out that the most profitable companies will benefit the most, which includes the profiteering energy companies and the banks.

Since the mini-Budget, the government has announced that there will also be a curb on public sector pay over the next two years. This means that there will be an unprecedented decline in real wages in the public sector, and the government’s hope is that this will set the ‘going rate’ in the private sector too. In addition, the clear intention is curb strike activity using legislation. The aim to mount a class offensive could hardly be clearer if Kwarteng had used that phrase.

Labour’s response

Under pressure of events and because this government is so extreme, the Starmer leadership is responding to the Tory attacks. But it should be clear that the scale of the response is pitifully weak and piecemeal, especially in light of the both the scale of the economic crisis and the scope of the Tory attacks.

So, there is to be £8 billion for a Green Investment fund (although it is not clear whether this is new money, or part of the £28 billion already committed to the Green Industrial Revolution policy), the railways will be renationalised (although it is unclear whether this includes the rolling stock companies, or whether there will be any investment to improve the network, or electrify it), there is the completely correct pledge to reintroduce the 45p top rate of income tax (but this only yields £2 billion, where measures are sorely needed to raise the living standards of low and middle-income earners). Fracking will also rightly be banned.

If we take these measures together, they amount to just £10 billion in spending or tax commitments, even assuming this is new money for the Green Investment Fund.  This is a tiny fraction of what the Tories are implementing, and will have only marginal economic impact.

Labour has also decided not to reimpose the increase in the basic rate of income tax. This will cost an estimated £5.6 billion over 5 years. But of course, public services are in desperate straits, the NHS is crumbling and the levy to tackle the crisis in social care has been scrapped.

The funds for doing any of this could come instead from reversing the cuts to Corporation Tax, which are enormous, as shown in the table above. But this is not even a subject for debate in Labour leadership circles.

So, the Tories are attempting to transform the economy with an intervention amounting to £160 billion plus far wider measures on public spending, pay and breaking unions. Starmer is tinkering with measures amounting to £10 billion.

The massive unpopularity of government policies, and the impression created that Starmer intends to be very different may well be enough for Labour to win the next election. It certainly looks like Starmer’s to lose. But socialists should be clear that his current plans do not at all amount to a reversal of these Tories’ project.

The wider labour movement

Naturally, the current level of strike action and growing militancy are already having an impact inside the Labour Party. They may also be a factor in Starmer having to put at least some distance between himself and the Tories. This would help to explain both the policy on reintroducing the 45p tax rate for high earners and the announcement of rail renationalisation.

Therefore, further progress on strike activity is decisive both in an effort to avoid big real wage cuts but also to pile the pressure on the Labour leadership to go much further. The issue of union rights is not a small matter either, as the threatened legislation could damage workers’ organisations for a generation.

The calls by Mick Lynch and others to increasingly co-ordinate activity will be implemented in the next few days. More workers, lecturers, teachers, nurses and others are also balloting on strike action. As many of these get drawn into the struggle and living standard continue to plunge for the bulk of the population, the potential for wider and even more co-ordinated action will grow.

Every branch of the Labour Party, every branch of the trade unions can be brought into the struggle, with speakers, rally, collections and joining pickets, along with trades councils and regional TUCs.

Socialists can play a leading role in building that support and campaigning with Enough Is Enough, the People’s Assembly, Disabled People Against the Cuts and others to build the movement on a national basis. At the same time they should explain what is at stake – the character of the Tory plan to Americanise the British economy and Starmer’s unwillingness to reverse that project.

A series of launch rallies for Enough is Enough are taking place around the country details here.

The People’s Assembly Against Austerity ‘We won’t pay for their crisis’ demo at the Tory conference takes place on October 2, details here.

Image: Kwasi Kwarteng MP at Global Growth: Challenge or opportunity for the UK?, Policy Exchange, Licensed under the Creative Commons Attribution 2.0 Generic (CC BY 2.0) license, Photo cropped.