Budget 2016: attacking the poor will not fix the economy

Chancellor Osborne is finding that there is no escape from the world capitalist economic crisis.

Proletarian writers

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Proletarian writers

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Chancellor George Osborne announced his 2016-17 budget to parliament on 16 March. Unsurprisingly, given the Tory party’s upper and middle-class constituency, among the losers were low to middle-earning workers and the disabled. The winners were the bourgeoisie and their highly-paid henchmen.

Unashamedly taking from the poor to give to the rich

Faced with reduced growth forecasts, this budget was a drastic retreat from the chancellor’s autumn statement. Whilst growth for this year had previously been estimated at 2.4 percent, the Office for Budget Responsibility (OBR) has now forecast a significantly lower 2 percent growth rate.

The result of this shortfall in predicted income has been a budgetary rebalancing act by the chancellor. When the autumn statement was announced, OBR projections had indicated that the chancellor would have an extra £27bn to spend between 2015-20. The reduced growth forecast has instead taken some £52bn away. (See How does the UK Budget 2016 affect me?, Financial Times, 16 March 2016)

Osborne’s budget eschewed all Keynesian attempts to stimulate the economy, which has brought forth a plethora of accusations regarding his government’s economic mismanagement, on which bourgeois and petty-bourgeois opponents of the government are now blaming all our present woes.

Mismanagement, for example, is said to be behind the fact that Osborne will miss at least two of his three main spending targets, these being: that debt should fall as a proportion of GDP, that welfare spending should be kept under control, and that the deficit should be eliminated by 2020.

The last of these is the only one that the chancellor is now thought to have any chance of achieving – although even this will require a major strategical rethink, with the current ‘low tax, low spend’ approach having patently failed to produce the desired effect. In all fairness to Osborne, however, we should point out that it is the capitalist crisis that is responsible for these statistics rather than anything Master George has or hasn’t done.

Despite the failure of Tory strategy to date, the budget showed absolutely no sign of a deviation in favour of injecting more demand into the economy. Osborne continued to play the anti-Robin Hood, stealing from the poor to give to the rich. There was a reduction in capital gains tax from 28 percent to only 20 percent, and corporation tax is to be slashed from an already low 20 to 17 percent by 2020.

In a reform to business rates, half of British businesses will now pay no business rates at all. Additionally announced was a “tax break for the digital age”, whereby “micro-entrepreneurs” will receive two allowances of £1,000, apparently to the benefit of 500,000 people. (See Financial Times, op cit)

That these gifts to business come on the back of a reduction in growth is counterintuitive to say the least. It ought to be a disgrace. As it was, the budget was premised on the assumption that if Britain’s capitalists can be helped to become more competitive than their overseas rivals by lowering their costs of production at the expense of the working class, then British business will be able to grow again and the world economic crisis will be relegated to the status of a bad memory (in Britain, at least).

It turns out, however, that the overseas rivals all have the same idea for saving themselves – the net effect of which has been a race to the bottom that is aggravating the overproduction crisis still further by decimating demand worldwide.

As a result of this flawed ‘every man for himself’ bourgeois logic, it was proposed in the budget that £4.3bn be taken from disabled people between now and 2020. According to Shadow Chancellor John McDonnell, one third of the extra money found to finance this budget is to be raised via attacks on the disabled. (See The price of Osborne’s failure is being paid by the most vulnerable, The Guardian, 16 March 2016)

So, once again, wealth is being redistributed from poor to rich, from those who need to those who have, all with the promise of jam tomorrow. But, as long as the crisis lasts, tomorrow will only bring more cuts and more misery for the proletarian masses. And to cap it all, the misery of the masses aggravates the crisis of overproduction rather than curing it.

As if to prove the point, a further £3.5bn is to be cut from government departments, and secret cuts of £650m to the NHS have also since been uncovered. (See Budget includes £650m in ‘secret cuts’ to the NHS, analysis shows by Jon Stone, Independent, 18 March 2016)

The tax on sugary drinks

Whilst this toxic combination of give-aways and cuts have amounted to mere footnotes in the mainstream media coverage, most attention was given to Osborne’s new sugar tax.

Bourgeois do-gooder Jamie Oliver grabbed headlines when he applauded the tax, calling it a “symbolic slap” to big business. But therein lies the problem: business needs a real slap (and somewhat more than a slap!), not merely an imaginary one. Instead, the government is handing out real hard cash to businesses while taking ever more from the poorest.

Allegedly, the tax will tackle childhood obesity by raising prices on sugary drinks by 18-24p per litre. For all the headlines that have been given over to the move, however, it is estimated that the tax will raise just £530m at most. This is a tiny drop in the ocean when compared to the £52bn budget shortfall, and its main effect will be to make the poor still poorer, given that the cost of any item they consume represents a much higher proportion of their spending power.

Be it said in passing that any meaningful attempt to tackle ill health through poor diet would involve a radical reorganisation of the whole of our food production system, not just a tax on one particular type of sugary rubbish. That, however, is not something we are likely to see this side of the socialist revolution.

The food industry is interested in ‘shifting product’, not in providing us with a diet that has been optimised for nutrition and health. For business purposes, the best possible products are cheap to produce, easy to transport and have a long shelf life. The fact that salt and sugar act as both preservatives and flavour enhancers makes them an essential cornerstone of the present production system. Multinational food producers are not going to stop manufacturing and aggressively marketing addictive, sugary rubbish in packets, for the simple reason that such products tick all the boxes in the capitalist business model.

Tax concessions to big business

Since it is increasingly unlikely that cutting costs of production (wages, social services etc) will result in making British capitalism competitive enough to rescue the British economy, it is improbable that these cuts will stimulate any significant level of new capitalist investment that might bring employment opportunities to the working masses.

In the light of this, the host of corporate tax cuts are the wrong cuts to make, even from the viewpoint of growing the capitalist economy, since they threaten to radicalise the proletariat while reducing effective demand still further.

The most likely result of Osborne’s latest budget is that cash that might (possibly!) have been paid in taxes will end up merely swelling the coffers of the hyper-rich still further. Moreover, in the absence of opportunities for profitable investment, this cash is either lying idle or is being used for gambling on the stock market or the commodities market.

At a time when most of us are being expected to ‘tighten our belts’, and when we have been treated to the sight of high profile companies like Vodafone and Google unabashedly refusing to pay their taxes, now we are told that the share they are expected to pay has been reduced. Such blatant bias in favour of the super-rich is embarrassing even some stalwart Tories.

Not that any of our bourgeois politicians really question the basic agenda of the government (save British imperialism, by any means necessary), but quite a few of them are worried that pushing cuts to benefits and services too fast and too hard will have the effect of angering the working class past the point of forbearance.

Sops to high earners

The so-called ‘middle class’ (ie, better-paid, privileged workers) have benefited from the budget via a tax cut that means that high earners will only paying the 40 percent top rate of tax on earnings over £45,000 (raised from the previous threshold of £42,385). These higher earners, of course, are those most likely to vote Conservative in any election, and they therefore need to be kept sweet.

However, the Conservatives may come to regret the stupidity of so blatantly combining these handouts to the relatively well-off in the same budget in which millions were being snatched away from the most needy and defenceless sections of society.

Sops to savers

Because of Osborne’s belief that economic recovery is dependent on more investment, the budget was designed to encourage saving. Money that is saved is kept in banks, which theoretically can use the cash to promote economic activity (and sometimes they do). For this reason, the tax-free Isa savings limit is to be increased from £15,240 to £20,000 per tax year.

In George Osborne’s first budget in 2010, he raised the Isa limit from £3,600 to £5,100. This means that in his time as chancellor there has been a 555 percent increase in the yearly cash limit. On top of this, he has announced the introduction of what he calls the ‘lifetime Isa’.

As the Financial Times reported: “George Osborne has already scrapped proposals to shake up pension tax relief in this month’s budget, leaving higher earners unsure as to what to expect. He instead unveiled a retirement savings vehicle for millennials, which he has badged the Lifetime Isa.

“He said the tax-free Isa savings limit would be raised to £20,000 a year from just over £15,000. He added that people under 40, ‘many of whom haven’t had a good deal from the pensions system’, would gain government bonuses for saving into their Lisas, receiving £1 from the government for every £4 saved, at a maximum of £4,000 a year.

“He added that money saved into a Lisa would not be taxed when it was drawn down as retirement income. Help to Buy Isas can also be rolled into the new tax-free vehicle.”(See Financial Times, op cit)

This little scheme would not only help capitalise lending institutions but would have the added advantage of making workers save up for their own old age, enabling the government to get away in future years with reducing state pension responsibilities still further.

Adding insult to injury, Osborne has announced a so-called ‘help to save’ scheme for low-paid workers.

According to the BBC: “Millions of low-paid workers who put aside savings could receive a top-up of up to £1,200 over four years, the government has announced. Employees on in-work benefits who put aside £50 a month would get a bonus of 50 percent after two years – worth up to £600. That could then be continued for another two years with account holders receiving another £600.” (Budget 2016: low-paid workers to receive savings bonus, BBC News, 14 March 2016)

But we live in a time of zero-hour and fixed-term contracts, in which personal debt levels are unparalleled, public services are being asset stripped and the cost of living only rises. With such uncertainty, and with low-paid workers struggling to afford the basic necessities of everyday life, the policy is little more than a waste of a press release.

All the same, Keynesianism is not the answer

Why, then, did Osborne not heed the call of the Keynesians to do more in his budget to stimulate the economy? Why did he not provide more benefits to the working class, for instance, to keep them spending and to help shift the stockpile of overproduced goods and services?

This is how Gordon Brown tried to ward off the crisis of overproduction when he was chancellor of the exchequer. Not only did it not work, it in fact served to aggravate the crisis by building up unprecedented levels of public debt.

Debt servicing obligations weigh hard on any economy, again by decimating effective demand (since public services and public-sector pay and pensions have to be cut in order to keep up repayments). The fact is that under capitalism there is no escape from the crises of overproduction that destroy everything in their wake.

Truly in times of economic crisis, a chancellor of the exchequer’s or a finance minister’s lot is not a happy one. Whatever policy they adopt, they cannot win.

Osborne’s humiliation

The fallout to this disaster of a budget was almost immediate. Most notably, the resignation of former party leader Iain Duncan Smith (IDS) from the cabinet highlighted the disharmony at the heart of government and the disagreements over the best way to keep the sinking capitalist ship afloat.

“In a letter delivered to Downing Street, Mr Duncan Smith told David Cameron that he did not have confidence in Wednesday’s budget, which cut taxes for the wealthy while hurting the disabled.

“The work and pensions secretary has been on the verge of quitting for weeks, with relations souring after he announced that he was to become a leading advocate of a British exit from the European Union. The budget proved the final straw.

“In a devastating letter to the prime minister, he suggested that the government was breaking Mr Osborne’s promise to the people that ‘we are all in this together’. His resignation is the most aggressive since Geoffrey Howe quit the Thatcher cabinet in 1990.

“‘The latest changes to benefits to the disabled … are a compromise too far,’ Mr Duncan Smith wrote. ‘They are not defensible in the way they were placed within a budget that benefits higher-earning taxpayers.’” (IDS quits in anger over cuts to welfare by Sam Coates and Michael Savage, The Times, 19 March 2016)

However, one does not need be a cynic to doubt the sincerity of IDS. Perhaps these attacks on the disabled really were just too much for his conscience, but this would be quite a change of heart from the minister who brought us an increased retirement age, the work programme and universal credit.

Most relevantly, his own record of attacks on the disabled is unrivalled. As recently as August 2015, government documents proved that over 4,000 people had died after being found ‘fit to work’, with IDS the minister responsible. “The Department for Work and Pensions battled for months not to release the numbers, with its chief minister Iain Duncan Smith at one point telling parliament they did not exist.” (Thousands have died soon after being found ‘fit to work’ by the DWP’s benefit tests by Jon Stone, Independent, 27 August 2015)

One might also mention that when courts ruled that the disabled should be exempted from the notorious bedroom tax, Mr Duncan Smith put his lawyers to work to challenge the ruling.

Moreover, before the budget announcement, IDS had been a supporter of Osborne’s policy of attacking the poor, and was reported to have defended it internally to his party. Now, he has used this unpopular anti-working class budget as a shield for his real reason for resignation: the upcoming EU referendum.

No issue has divided the Tories more than Europe, and IDS’s views represent a significant section of his party. Free movement of capital is fine, but free movement of labour is just too much for them to accept. We should expect to hear IDS continue to make his case for leaving the EU (for all the wrong reasons), but we will not hold our breath in expectation that he will now take up the cause of the rights of the disabled.

Nevertheless, his resignation has forced the government to do a U-turn on its proposed attacks on the disabled and to announce that, after all, their meagre benefits are safe for the time being. A bonus may well be that that Poor George has lost all chance of fulfilling his ambition to take over from Cameron as Tory party leader and prime minister.

The real lesson of the budget debacle for workers is, as ever, it’s time to face it: capitalism must go! As long as the system lingers around in its present state of dangerous decay, it pollutes everything it touches. It sucks the blood of the working class in the hope of saving itself, but all in vain.

Workers face a constant fight to maintain their standard of living and to avoid being dragged into capitalism’s unjust wars. There really is only one solution to the ever-recurring and deepening crises of capitalism, and that is to overthrow the rule of the bourgeoisie and replace their rotten capitalist economic system with socialism.