What can we expect from Budget 2014?
George Osborne’s Budget speech will attempt to take credit for the return to growth in the economy. Instead he should apologise for the disaster his austerity policies have brought on the British economy and the living standards of the majority. The economy remains 1.4% smaller than it was in 2008. Across the water the US economy, which didn’t follow the same austerity policies as the UK, is 6.5% bigger. On the key measure that the Tories presented at the last election – elimination of the deficit – he has failed miserably. The deficit this year is likely to be £111bn.
These dry economic figures are felt in every household in the land as we suffer falling living standards, as the IFS has shown. The poorest 10% of individuals in 2013 saw a 5.15% fall in income after tax compared to 2010. At the median income level, the fall is 3.25% or a monthly fall in pay after tax of £1,934. Even with an expected slight recovery in wage growth this year, real earnings are not expected to return to 2009-10 levels until 2018-19. For the poorest, hunger has returned – Foodbank Britain is the most vivid expression of this disaster.
Even the tepid recovery in growth is deeply fragile and unbalanced. After our worst ever recession, arising out of an unrestrained financial sector, personal debt and a housing bubble, the desperate Chancellor is relying on growth funded by increased personal debt and a housing bubble.
We should, but won’t see a Budget which recognises the grave errors of an ideological government, and instead addresses the key issues of the economy. A budget which gets to the roots of our economic crisis and sets Britain on the right course rejecting failed austerity, and ending the continued deep cuts to our public services.
1. Britain needs sustainable growth based on investment. A State Investment Bank with the ability to borrow and lend on a scale similar to the German, French and Brazilian comparators, to unleash private sector investment so that the UK doesn’t languish near the bottom of the international investment tables. This would help address the dangerous productivity crisis in the UK which impacts on living standards. Utilising the public stake in the RBS and Lloyds to promote investment rather than selling to make a fast buck and artificially reduce the debt
2. Public investment and capital spending should be radically increased – public investment is still 35% below pre-crash levels. A major and ambitious infrastructure programme – as Labour proposes with the Armit Review – can make a big counter austerity contribution. Building 250,000 homes a year (not re-announcing a few thousand expensive houses in Ebbsfleet), and especially requiring local authorities to build social housing provides a triple win – more and cheaper homes, more jobs and economic stimulus.
3. Both public and private investment must be sustainable both in the sense of transforming the roots of the economy, but also towards greening the economy, to address the urgency of climate change and equip the economy for the future.
4. The crisis of inequality in income and wealth must be tackled- the biggest issue of our time. Personal tax allowances which benefit the rich more than the poor, and minor childcare measures which have a similar effect will be trumpeted as the coalition helping the hard-pressed., when they are nothing of the kind. They are mere pathetic mendacity when set aside the gravity of the problem. The cost of living crisis needs urgent action. An increase in the minimum wage of £1.50 would kick start consumer spending and put money in the empty pockets of the lowest paid. Ending the freeze on public sector pay would likewise be fair and boost consumption. The war on the welfare state needs to be ended - but longer term measures to restore power in the labour market, including re-empowering weakened unions alongside the regional and industrial rebalancing impact of the investment as proposed above are needed too. A good Budget would grasp the nettle of taxation. The rich and the superrich will get richer if they are not taxed – and both their income and wealth must be taxed. As wealth distribution returns to 19th Century levels of inequality as a consequence taxation and working class power recedes from its 20th century peaks, it will take bravery to challenge the long consensus. But a new emerging consensus is ready to be built – inequality is bad for the economy, and bad for the living standards of the mass of the population.
As Robert Skidelsky, economist and former Tory peer, put it in the New Statesman last week, “To put the matter crudely: a recovery based on stuffing the mouths of bankers with gold will be less durable than a recovery based on an upsurge of mass spending power.”
Gerge Osborne remains committed to his ruthless class-based, ideological austerity policies – so watch out for more gold going into bankers’ mouths amidst tricky rhetoric which suggests the opposite.