Budget: reality bites

The contents of the Budget announced on 30 October by Rachel Reeves, Chancellor of the Exchequer, were widely trailed beforehand. But the headlines and presentation served only to obscure and confuse the underlying issues.

In some ways it was like most previous Budgets – as one commentator described it, “Pencil in implausibly low spending increases for the future in order to make the fiscal arithmetic balance.” But it would be unwise to ignore what the government is up to.

Wealth of the nation

Behind the patronising talk of “working people”, blaming previous governments and claims that tax rises today would bring growth tomorrow, the economic truth is that British workers directly pay by far the greatest part of the tax collected by the government. And indirectly, the surplus value created by workers is the source of profits too. Truly workers are the wealth of the nation.

Yet under capitalism workers have no effective say in economic decisions that affect them. The government of the day will make out plans and promise spending will lead to growth. Yet they do not talk much about the cost of borrowing – determined by financial markets – or the cost of foreign wars – euphemistically called “defence”.

Fiscal rules

Reeves declared that she was rewriting the fiscal “rules” – self-imposed fiscal targets – so that government spending and borrowing are in balance each year and overall debt is reduced by the end of the parliament. There’s increased funding for the NHS, but overall it looks much like Austerity 2.0.

The fact is that the 2007-2008 financial collapse is directly linked to the budgetary problems in 2024. The consequences of past decisions are becoming reality – as set out in our 2022 statement Real Control for Real Independence.

‘The 2007-2008 financial collapse is directly linked to budgetary problems in 2024.’

Around 2006 public debt was about £600 billion, it’s now about £2 trillion. The difference represents the bad debt that has been effectively transferred from commercial banks over to the taxpayers’ purse since about 2008. Why is this allowed to happen?

And come to that, why does Britain hold around $700 billion (£540 billion) in US Treasuries (government securities) – only Japan and China hold more? Why is it supporting US government spending instead of being applied here in Britain?

Worrying signs

The cost of government borrowing shot up again after the Budget announcement. Yet the financial market signs were worrying even before the Budget. Recently the interbank lending rate (the cost of borrowing between commercial banks) went to about 7.2 per cent – normally it should be close to the Bank of England base rate of 5 per cent. This disparity indicates there is an underlying liquidity problem similar to 2008 (and lesser problems in September 2019, March 2020 and October 2022).

Such disturbances in financial markets can also indicate expectations of war. The UK government adopted a “fusion doctrine” in 2018 – coordination of military, economic and diplomatic strategy fully aligned with NATO strategy. The Labour government follows the same path, which it calls “NATO First”.

Military spending

When the government talks of “black holes” and “hard decisions” we have to ask why do the people of Britain have the NATO albatross tied around our necks? We have already paid £12.5 billion funding Ukraine. And now we have a budgetary commitment that £3 billion of our taxes is set aside to help fund NATO military spending this year, with an increasing amount in years to come.

The government claims it will look at value for money in its spending. It’s time to ask why they think funding NATO for foreign adventures is a good idea.

Specious promises

The promise of spending to generate growth is specious. The Office of Budgetary Responsibility is supposedly independent, but works from the same assumptions – even it predicts a drop in growth. And similar growth promises in the past have turned on public sector “productivity” gains – for which read cuts in jobs and conditions.

The detail of the fiscal changes offers little consolation to workers. Increases to employers’ costs will feed through to workers – again holding down wages and cutting jobs. The babble about a £22 billion shortfall harks back to changes made by the previous government this spring.

‘Workers will have to fight to maintain living standards and jobs. Yet that won’t be enough.’

The reality is that under this government, workers, whether in the public or private sector, will have to fight to maintain living standards and jobs. Yet that won’t be enough, as the one truth that Reeves admits is that there’s a lot to be done.

Increased spending on the NHS must come with a plan – including a reduction on reliance on migrant workers. Instead of using Lord Darzi’s report to justify their “Britain is broken” narrative and running a public “consultation” as an alternative, they should listen to what Darzi really said and to health workers themselves.

Net zero

And then there’s net zero, with inevitable costs to government, business and individuals – all without a plan – as Unite and other unions have tried to point out. The funding allocation for the Department of Energy Security and Net Zero has gone up by over 20 per cent to £14.1 billion, greater than any other area.

The increase in Energy Profits Levy on gas and oil will raise funds in the short term, but is consistent with decisions already made to cut exploration. Investing in so-called green projects isn’t a proven path to growth and jobs. Worse, current energy policy will lessen energy security by increasing reliance on imported energy.

And, as with its predecessor, the government is delaying key decisions on energy supply. Rolls-Royce is a world leader in small modular nuclear reactors. Yet it is waiting on yet another review next year before getting British orders.

Food security

Food security is also under threat – from increased energy costs, using land for solar farms, planning changes encouraging green field housing developments and now changes to tax rules. The National Farmers Union says this will ultimately affect food production, and it’s not alone in that view.

Much of what the Budget set out is what might normally be expected from a new government. But while many workers will fight to maintain jobs and wages, there’s a risk in thinking that’s all they can do.

Labour’s plans for spending – on war, energy, and health in particular – represent a vision of Britain that’s not in the interests of the working class. That needs challenging.