News from Nowhere: Money Worries
This is the third Prime Minister we’ve seen since the last election. This is the third Prime Minister we’ve seen this autumn. The governing party can’t blame anyone else for the economic pain they’ve now felt obliged to impose upon ordinary working people in an attempt to sort out their own mess.
Last Thursday, the British government issued its much-anticipated autumn financial statement.
This had originally been scheduled for late November in a bid to calm the markets following the meltdown caused by the ill-advised 'fiscal event' which Liz Truss had foisted upon the nation during her unprecedentedly brief premiership.
Truss’s Chancellor has since revealed that he had urged her to 'slow down' – but not until after his mini-budget had already provoked extraordinary economic chaos.
Despite her subsequent policy reversals and pledges to balance the books, the markets had continued to panic, and the value of the pound had continued to fall. And so Ms. Truss had replaced her Chancellor with a slightly more reliable chap who said he could get the job done by the end of October.
This had managed to placate the financial markets somewhat. They were then rather more reassured when Liz Truss was herself replaced in Downing Street by the fiscally conservative (and less obviously insane) Rishi Sunak. However, Mr. Sunak felt he needed rather longer with his new Chancellor to fix the economy and so delayed this latest budgetary statement by a further seventeen days.
By this point, the fluctuating dates of this announcement might have seemed almost as mind-numbingly complicated as the fiscal figures involved, were it not for the fact that, at least partly as a result of the former Prime Minister’s eccentric economic experiment, the ordinary progress of the nation’s finances had become so derailed that the Bank of England had been obliged to announce its biggest single interest rate hike since 1989 and was projecting the longest period of recession since records began. Indeed, earlier this month, it was reported that during the third quarter of the year, the UK economy had shrunk by 0.2 per cent.
Then last week, it was revealed that the prices of various popular branded food products – including that staple of the healthy British diet, Heinz tomato ketchup – had soared by more than fifty per cent in the last two years. Families struggling to keep their children warm and fed suddenly faced yet another indignity, one which held a curious degree of emotional impact: they could no longer afford proper dollop of the red stuff, their last-surviving taste of luxury, on their value-range, reduced-to-clear, generic mixed-meat supermarket sausages.
The day before the autumn budget statement, the rate of inflation topped eleven per cent, hitting its highest rate for 41 years. The price of a pint of low-fat milk had risen by nearly forty-eight per cent in just twelve months. That same day, amidst rising production costs and record cases of avian flu, several leading retail chains announced that they were rationing the number of eggs customers could buy.
During the height of the Covid-19 crisis, Rishi Sunak had, as Chancellor, somehow managed to ensure that the government’s bills carried on being paid and had kept the country’s labour force almost afloat (or at least ready to return to work) through his furlough scheme – a mechanism by which the state paid for the continued employment of those unable to work through those months of lockdowns of non-essential services necessitated by the pandemic.
He’d even subsidised eating out in a bid to boost the hospitality trade in the immediate wake of the pandemic’s first wave. For the Treasury, all this had taken a Herculean effort, one unprecedented in peacetime. It had indebted the nation for generations to come. But, by autumn 2022, thanks to a combination of outbreaks of war in Europe and of madness in Downing Street, this time things were going to be really tough.
Mr. Sunak had already reversed his short-lived predecessor’s plans for a massive programme of unaffordable tax cuts. He now had to make what his government had repeatedly warned were ‘eye-watering’ decisions in relation to tax rises and reductions in spending on public sector services.
This has come precisely at a time when those services are already in crisis, with healthcare and social care straining to address mounting demands, and education facing escalating costs as a consequence of rampant inflation, leading the head-teachers’ union to report this month that two-thirds of its members expected to have to reduce teaching staff.
Everyone in the country, the government reiterated in the days leading up to this week’s budget, would have to pay more tax. No arguments. Fait accompli. Full stop.
Yet the strategy eventually chosen by Chancellor Jeremy Hunt was, for the most part, to do nothing: or, rather, to do nothing very emphatically indeed. He elected to freeze lower tax thresholds even as incomes are set to rise, thus ensuring higher proportions and levels of those earnings ending up in the hands of the Treasury. He also froze inheritance tax thresholds and resolved to limit long-term rises in public spending despite hugely increased costs resulting from the steepest rates of inflation seen in decades.
The government thereby plans to plug a massive hole in its finances through raising revenues to the tune of £24 billion and cutting spending by £30 billion in real terms over the next few years (although protecting expenditure on public healthcare and schools). Meanwhile, plans for state subsidies of social care costs have been put on hold for another couple of years.
He also significantly raised the level of a popular windfall levy on the booming profits of energy companies originally introduced by the current Prime Minister when he was Chancellor.
He increased the national living wage and raised state welfare and pension payments by the rate of inflation recorded last month. This was a surprisingly positive move, although inflation has risen even further since then, and looks set to continue to do so.
He also lowered the level at which the highest rate of income tax is paid, drawing many thousands of the better-paid into that bracket, although leaving the very-best-paid relatively unscathed (apart from cuts to tax-free allowances on dividend and capital gains revenues).
Much of this might seem quite sensible, at least in comparison with the standards set by the previous administration. It was hardly a redistributionist budget, but at least it didn’t try to funnel wealth in the direction of the super-rich. There are, however, three main problems with the government’s fiscal strategy.
The first is that by increasing their investment in fossil fuel exploitation (contrary to the UK’S net zero carbon emission commitments) the oil multinationals have so far been able to activate tax breaks sufficient to offset the vast majority of previous windfall levies. It remains to be seen whether they’ll be able to continue to exploit similar loopholes.
The second is that doing nothing is not standing still. It necessitates reducing efforts to alleviate the economic pain felt by millions of families faced with massive hikes in the prices of food and the costs of heating their homes. Though those families, for example, will continue to receive help with their energy bills, that support will be rather less generous than before. One-off hardship payments will go to pensioners, disabled people, and those on means-tested benefits, but there are many who would argue that more action is needed. You cannot simply tread water when you’re hurtling down the rapids and about to plummet into the thundering abyss.
And the third problem is this: the nation’s financial woes have been both exposed and exacerbated by the impetuous actions of the previous Prime Minister and Chancellor who, just two months ago, panicked the markets and crashed the economy with their own patently absurd fiscal plans.
This would be politically acceptable if the previous administration had been ejected from Downing Street, and replaced, through the democratic sanction and mandate of a general election. But the fact is that the current government has been put into power by – and comprises key members of – the same political party which earlier this autumn threw the country into chaos. Indeed, many senior ministerial appointees and Cabinet members have held onto their positions. Astonishingly, the Home Secretary and Foreign Secretary who let Liz Truss get away with the craziest act of economic self-harm imaginable (short of swapping the gold reserve for a pet hamster or doubling the national debt to buy some really nice sweets) are still in post.
It doesn’t matter that last summer the current premier warned his party of the inevitable impacts of his predecessor’s plans. What matters is that they were told this and still elected her – and that many of them then served and supported her patently unworkable agenda.
This is the third Prime Minister we’ve seen since the last election. This is the third Prime Minister we’ve seen this autumn. The governing party can’t blame anyone else for the economic pain they’ve now felt obliged to impose upon ordinary working people in an attempt to sort out their own mess. It’s difficult to see how they might manage to spin or survive this one. Yet they very possibly will.
The sudden presence at the top of government of a well-mannered, composed, hard-working, conscientious, and intelligent leader shouldn’t surely be enough to get the Conservatives out of this – although it obviously makes a nice change. If Mr. Sunak manages to pull off an economic miracle and somehow ameliorate the pain the British people are set to feel over the next two years, then he may manage to keep his party in power through the next scheduled election. One suspects though that the only way he might manage to achieve this would be by ditching most of them.