Hunt’s austerity Budget meets working class resistance

Jeremy Hunt, Chancellor of the Exchequer

By Tom O’Donnell

Almost the only merit of the first Budget from Jeremy Hunt is the fact that it clarifies how austerity works. This austerity Budget, like all its predecessors, is not simply cuts, although these are numerous and deep. It is the transfer of incomes from poor to rich and from workers to business shareholders and executives. It is a conscious government policy; a class offensive.

So, a key reason why there was any money in the Budget is because of the renewed austerity offensive combined with very high inflation. Where Cameron and Osborne (and later May and Johnson) tried to force big cuts in spending, a combination of popular resistance and their own political weakness limited the effects to a degree. But the current inflationary wave magnifies the effects of austerity policies by cutting pubic spending in real terms.

Restraining public spending, including pay, while inflation is high puts a huge burden on both public services and public sector workers struggling with real pay cuts. But at the same time inflation raises government revenues such as income tax, self-assessment payments and VAT. It is that discrepancy -paid for by workers and all those who rely on public services, which allowed Hunt’s giveaways.

These giveaways amounted to £88.8 billion over the next 5 years, which is sizeable amount, about 0.75% of GDP each year. However, almost none of this will benefit ordinary households.

The big winners are companies. £29 billion is used in a revival of the failed idea that tax breaks will incentivise private sector investment. Polluters will also benefit through the fuel duty levy freeze (£15.1 bn), and the MoD will have an extra £11 bn to part-fund its adherence to US war policy against Russia and now China.

The sole vaguely progressive measure in the Budget is £18.1 billion to help with childcare costs. But this is over a 5-year period, which amounts to a cut-price, piecemeal and private sector set of measures that are much less effective than Sure Start, which the Tories have effectively abolished.

The aim is a purely political one, as the Tories are 33 points behind Labour among women (compared to 13 points among men). But even this has been botched for purely ideological reasons. Without new state provision and relying on private childminders means prices will be pushed higher as demand outstrips supply. Nurseries are actually forecast to close as a result.

The claim that consultants are leaving the NHS because they cannot top up their pensions is a blatant lie. It is a general benefit to the highest tax payers, so that they can shield their pay from income taxes. Pensions are also generally exempt from Inheritance Tax too. The class war aspects of this Budget are rather stark.

The Treasury documents show that the Tories will continue to squeeze public sector spending across the board – excluding Defence – and total public spending is projected to consistently fall as a percentage of GDP over each of the next 5 years.

Notably, they also intend further cuts in real pay in the public sector. There is a somewhat optimistic forecast of an average of 4.1% CPI inflation over the next year, especially as the starting-point could be close to the current 10%. But they have budgeted for just 3.5% for public sector workers’ pay in departmental spending, meaning another year of real pay cuts, bigger ones if inflation remains higher than forecast for longer. 

They also specify that matching their forecast for inflation with pay rises would cost an extra measly £2bn (when they have just given away £88bn), but they refuse to do it. This indicates that they are aim for a permanent reduction in real terms pay, and are quite content to see further industrial disputes which they will make a key part of the next general election campaign.

The Tories have drawn a lesson from Cameron and Osborne years. It is not to give up on the policy of driving down the living standards of workers and the poor in the hope of boosting profits. Instead, it is to use inflation as a weapon in that fight, creating very deep cuts in public spending, and public sector pay.

This attack is what is funding the repeat of the failed policy to boost Investment by giving companies tax breaks.  The British economy has an abysmal level of Investment – the lowest in the OECD as a percentage of GDP over 20 years. But the policy of tax incentives failed under Cameron and Osborne and there is no reason to believe this time will be different. Companies aim to make the level of Investment that is profitable. That does not tend to change at all with tax breaks – they are just pocketed, as Investment is driven by anticipated profits.

The £29bn could have been used for direct Public Investment. But cutting Investment is also a key part of the austerity policy. It is the counterpart to privatisation; the State ‘getting out of the way of the private sector’ in an effort to maximise the private sector’s profits.

It is notable that the reception to this Budget is much more hostile than previous similar packages, even from liberal circles. This owes almost everything to the breadth and militancy of the current strike wave. It is almost nothing to do with the Labour front bench, which has committed solely to reversing the changes to pensions and has failed to explain that it is a benefit for the 1%, while the entirety of the £88bn giveaway could have been used for pay, progressive redistribution and Investment.

However, that strike wave has created a new situation. The mass of the population feels they will be worse off.  There is too a growing awareness that this is an orchestrated attack on living standards.  The strike wave itself shows that there is not only an understanding that the government is responsible for the attack, but the working class is engaged in a counter-offensive of its own.

The above article was originally published here by Socialist Economic Bulletin.

Photo: Official portrait of the Chancellor of the Exchequer Jeremy Hunt. Picture by Andrew Parsons / No 10 Downing Street, licensed under Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0)