Despite its sleek language and choreography, Sunak’s second Budget is a reflection of the deep crisis facing British capitalism. All the old economic projections have gone up in smoke.
Out has gone talk of austerity and belt-tightening, which characterised the past period. Sunak is splashing money around as if there is no tomorrow. Total government spending on the pandemic is projected to rise to an incredible level of £344bn, roughly 16% of GDP.
“It also signals a shift in the Conservative orthodoxy that reigned since the Thatcher era,” notes the Financial Times.
This is no change of heart from the Tories, as every capitalist government in the world has turned on the taps in face of the greatest crisis for three centuries. It is nothing more than an act of desperation to prop up capitalism and prevent an immediate avalanche of job losses, with all the social upheavals that that will bring.
Crisis and collapse
Sunak has extended the furlough scheme and other support measures until the end of September, at a cost of £65bn. Given the collapse in revenues, around £90bn, this means that the budget deficit will be the highest in peacetime history.
Public debt will be over 100% of GDP – the highest since the aftermath of the Second World War. If interest rates rise, this will have a crippling effect.
“Our economy has shrunk by 10% – the largest fall in over 300 years,” Sunak warned. “Our borrowing is the highest it has been outside wartime. It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation.”
The so-called Office of Budget Responsibility (OBR) has predicted that the economy will rapidly bounce back from the latest lockdown, with growth of 4% this year and 7.3% next year. But this is all guesswork.
Of course, there will be a recovery. There was a recovery last summer of 16%, but this was followed by a slowdown. In any case, the OBR forecasts that the British economy will still be 3% smaller in five years’ time, leaving a big hole in the public finances.
The OBR is also now predicting that unemployment will peak at 6.5% – lower than previous estimates of over 10%. But again that is a hopeful guess.
Hope springs eternal
Even some economists believe this forecast could prove optimistic. Carys Roberts, executive director of IPPR, said the OBR’s scenario was a “rosy view” that ignored the losses many households and businesses had sustained.
Clearly, the real impact will come after the furlough scheme is ended in September, in which hundreds of thousands are expected to lose their jobs. There is a belief that unemployment in the ‘recovery’ will stay higher for longer.
Roberts believed the chancellor was “betting on a ‘trickle down’ recovery led by high earners and big businesses”. However, in times of crisis, rather than a trickle down, there has been a trickle up.
Whatever the recovery, extensive unemployment and weak balance sheets will not result in wage rises. In fact, the OBR suggests that labour’s share of income will fall, leaving average earnings 6% below their pre-pandemic trajectory by 2025. Those on benefits will see their benefits cut by £20 just as unemployment nears its peak.
Sunak hopes that his tax write offs on capital gains tax will boost investment, which is the lowest of the G7. But that is wishful thinking. There are shrinking markets, not least due to Brexit. And there are years of under-investment to make up for.
Given the squeeze, the Chancellor has announced a rise in corporation tax from 19% to 25% by 2023. This would raise about £17bn in revenue, but it will hit the very investment he is seeking to increase.
Business representatives said they were worried about the signal it sent, especially to foreign investors. But Sunak replied that the government was still committed to a “pro enterprise and pro business” approach.
The Financial Times warned, “once deductions and allowances are included, corporate profits will be taxed more heavily than in other advanced economies.”
This will hurt the bosses in their pockets, and big business will be demanding that this rise be reversed as soon as possible. ‘Let the workers pay’ is their motto.
Give and take
The Treasury estimates that the government will have spent £407bn on tackling the pandemic and its fallout. But it fails to say that more will be needed in the post-pandemic period, not least for vaccinations and testing. The NHS also faces a massive backlog in non-urgent operations.
65b extra for covid at this budget alone. Astonishing.. total is 407 BILLION— Harry Cole (@MrHarryCole) March 3, 2021
There is no money for local government, which is on its knees after decades of cuts and increased pressures. Whatever gloss they want to put on it, it will feel very much like a continuation of austerity.
The promised £4.6bn fund to ‘level up’ the country will disappear into a bottomless pit, as the poorest areas are hit the hardest. At the same time, government departmental spending is to be cut by a further £4 billion.
The decision to create eight new freeports will do little. As the Financial Times noted: “There were only token efforts to ‘level up’ growth outside London, beyond ‘free ports’, which are unlikely to achieve much.”
There will be more spending reviews in the autumn. This Budget will go down as a “give then take” affair – giving with one hand for now, but then taking much more away with the other in the future.
Day of reckoning
The ruling class is supportive of Sunak, keen for him to avoid a premature ‘fiscal retrenchment’. But retrenchment is inevitable.
Sunak has simply kicked the can down the road, hoping the vaccine rollout will kickstart the economy. But the economy will be badly ‘scarred’. Productivity growth has already stalled. And all this unprecedented spending will need to be paid for.
The government can delay the day of reckoning for a period, but it is going to come back with a vengeance. Austerity has not gone away.
The capitalist crisis, with all its ups and downs, is here to stay. It is essential the working class arm itself for the battles that lie ahead.
There is no way out on the basis of capitalism, except austerity and hardship. Starmer’s Labour leadership has nothing to offer – only a ‘me too’ approach, aping the Tories.
Only the eradication of capitalism and the implementation of a socialist planned economy can offer a way forward. Only then can the resources of Britain be used for the benefit of the majority, and not the super profits of a few.