Getting the Budget right is a critically important part of governing well. If the Budget is well-formulated, it gives space to address the real issues; if it is not, then whatever promises politicians make, they will not be able to keep.
Frequently, Budget analysis in the media does not look at it this way and instead focuses on two questions:
- The Chancellor has defined some so-called Fiscal Rules for him/herself – does the Budget conform to these self-imposed rules?
- What is the short-term impact – ignoring wider economic impact – of the personal tax changes?
This article aims to follow the rules we suggested to the editors of our media and explores the real question: does the Budget make it easier or harder to solve the problems facing the UK?
Our conclusion is that the Chancellor’s Budget makes it harder to solve the problems we face, but an alternative Budget was perfectly possible, which would help tackle them:
- The UK faces multiple, serious and worsening problems;
- This Budget will make it harder to fix them;
- A Good News Budget was perfectly possible.
What are the problems the Budget should solve?
The problems the UK faces today are increasingly clear: our economy is in bad shape, both relative to historic trends and in comparison with what used to be our peers; for the first time in living memory, many Britons are getting poorer – they are worse off now than in 2010; our public services – even the NHS – have been brought to the brink of failure; and our government is doing nothing to protect the environment. These are the problems the Budget should be addressing.
Here is our overall economic performance: GDP per capita is now more than 15% lower than it would have been if we had continued on the 1980-2010 trend (a trend which included the impact of the Global Financial Crisis).
For most citizens, this has translated into their income being lower than it should be: to the tune of over 25%. In other words, the median earner earns over 25% less than they could have expected to be earning, and less (after inflation) than they earned in 2010! This level of sustained mass impoverishment has not been seen in the UK since the 1920s.
Because of austerity, our public services are increasingly failing to meet expectations: even the NHS, which just a decade ago was rated as the world’s best healthcare system, is now on the brink of failure.
Environmentally, the picture is no better: our rivers and coastal waters are increasingly polluted with sewage and the government is rowing-back on its already inadequate plans to combat climate change.
In summary, the UK economy, household finances, public services and the environment are all in imminent danger of serious collapse. That is what a responsible government would be aiming to tackle with this Budget.
Will this Budget do that?
We have written before that this government has been systematically transforming the UK into a Plunder State in which: “tax-funded spending is fine, as long as we can direct it to whom we want and as long as the tax burden does not fall on the wealthiest.” In the Plunder State model, “the government would increasingly be acting as a mechanism for redistributing wealth from the ordinary subject citizen to the sovereign individuals.”
This Budget does little to change that and will meet the needs of the very wealthy while failing to address the needs of UK citizens in general: it will not deliver growth; it will not help ordinary people; it will not rebuild public services and it will not tackle the climate emergency.
The Budget will not deliver growth
The size of the economy is measured by GDP, which is defined as the sum of four components. If any one of these grows, that contributes to growth in the economy; and if any one of them shrinks, that constrains growth in the economy. The four components are:
- Public (or government) spending; plus
- Household spending (or consumption); plus
- Business investment; plus
- Trade surplus (or a negative figure if, like the UK, you run a trade deficit).
If you wanted to prevent growth, you would take steps to undermine all four of these components. And that is what this government has done over the last 14 years, and what it continues to do in this Budget.
As a result, the Office for Budget Responsibility (OBR) has further reduced its growth forecasts.
And without higher growth, we can expect to see continuing high rates of company bankruptcy, which are now near record levels.
This Budget is not helping the overall economy.
It will not help ordinary working people
In the UK, for most people, their earnings are down in real terms (as we saw above) and they are drifting further and further behind what used to be their peers in other Northern European countries.
This Budget will not improve that picture. As the Institute for Fiscal Studies (IFS) put it,
“… in aggregate the NICs cuts just serve to give back a portion of the money that is being taken away through other income tax and NICs changes – in particular multi-year freezes to tax thresholds at a time of high inflation. Overall, for every £1 given back to workers (including the self-employed) by the NICs cuts, £1.30 will have been taken away due to threshold changes between 2021 and 2024, with this rising to £1.90 in 2027.”
People who get their money by working for wages and salaries will not find much comfort in this Budget.
It will not help public services
According to the OBR,
“The real per person value of departmental spending plans has fallen significantly since the Government first set them out in the October 2021 Spending Review and is now forecast to be flat over the next five years. … This is around £630 (8 per cent) lower than anticipated when plans were first set in October 2021.”
And on Health, the IFS commented acidly,
“Some of the few notable spending announcements today related to the NHS. First was an additional £2.5 billion of day-to-day spending for 2024–25. As we highlighted earlier this week this seemed inevitable at some stage in order to prevent a real-terms spending cut between this year and next. Second, was an additional £3.4 billion of capital funding for the NHS in England, to fund investments in technology and productivity-enhancing service improvements. This is a sensible area to focus, given lingering post-pandemic productivity issues in NHS hospitals. But all of this investment spending is to come after the election, from 2025–26 onwards. The Chancellor has, in effect, announced ‘extra’ spending relative to a baseline that doesn’t exist. He has promised this extra spending, but it will be for the next government to deliver (and fund) this in the next Spending Review.”
It will not tackle climate change
Neither the word “climate” nor the word “environment” appears in the Chancellor’s statement.
This Budget, in other words, will tackle none of the major issues the country faces, but it does perpetuate the migration of the UK into a Plunder State.
A Good News Budget was possible
What would a responsible Chancellor have done? He would have boosted growth by tackling leakage.
Boosting growth
How can you boost growth? The answer is – perhaps rather obviously – by boosting the four components of GDP.
Unfortunately, in the UK, talking about increasing public spending has become taboo – the myth that “there is no money” has become so widely spread that many in our media disseminate it. But as we pointed out in Rule #1, it is nonsense – the UK has not been on the gold standard for over 50 years. The government can create money – and it does in huge quantities, via the Bank of England, whenever it needs to.
The real question is therefore not about money or debt but about real resources: do we have the manpower and other resources needed to drive growth? The OBR states,
“We expect a moderate rise in the unemployment rate, peaking at 4.5 per cent in the last quarter of 2024, in line with our forecast for subdued economic growth and increasing slack. The peak in unemployment, which represents a total of around 1.6 million people looking for work, is marginally lower than in our November forecast, though it comes half a year sooner.”
So it may well be that we do not have to worry about tight labour markets.
But to be on the safe side, let us take the hypothesis that the answer is ‘no – the real resources are not currently available.’ In that case, to avoid fuelling inflation, we need to withdraw money (and the real resources it has been consuming) from certain sections of the economy where it will do least good in order to direct it to where it will do most good. We can do that by stopping the leakage.
Stopping the leakage
We now have the highest tax rates for 70 years yet our public services are on their knees. This has caused many people to ask where has all our money gone?
There are two main causes of this apparent paradox:
- Economic weakness. Because our economy has grown so slowly, but need has continued to grow at historic rates, the same level of public services costs a higher proportion of GDP than it would have done with a strong economy; and
- A staggering level of ‘leakage’ – what should be public money that finds itself either not going into public services, being misspent, or simply not being collected in the first place. That is the cost of a Plunder State.
The amount of leakage is mind-blowing: because HMRC has been under-resourced, avoided tax is estimated at £2.7 billion per annum; evaded tax (that is the illegal one) is estimated at £4.6 billion per annum; and uncollected tax at £35 billion per annum. IN recent years, we have seen COVID fraud at £7 billion per annum; and general fraud, estimated at £25 billion per annum. Then there is taxing capital gains at the same rate as earned income, which could generate a further £30 billion per annum. A wealth is practically difficult to implement, but could raise up to £70 billion per annum. Public money given to the railways totalled £21.1 billion in FYE March 2023. And what about turning some or all of the £64 billion per annum of government grants to business into equity purchases and starting to build a sovereign wealth fund?
If you add that lot up, the leakage looks like this:
In total, if all the leaks were completely plugged, the benefit to UK citizens in general (though not those who have been on the receiving end of the leakage) would be a truly staggering £250 billion per annum.
Now, of course, identifying these leaks is easier than actually plugging them all. Most of them could not be plugged easily or quickly – for example rebuilding tax enforcement capability in HMRC would take time. And not all of them – eg the conversion of subsidies into equity – would result in more cash being available in the short term. But it is not unreasonable to suppose that £60 billion per annum of spendable cash could be realised from a combination of these sources.
£60 billion per annum would be enough to produce a radical reforming Budget that did tackle the nation’s problems without increasing taxes on ordinary working people.
Tackling the Nation’s problems
To tackle the problems we face requires investing in the health of the nation both literally and metaphorically. The extent of what is now needed is large – of the order of £50 billion of additional spending needed:
- £30 billion per annum to tackle the failing health of the nation: funding the NHS properly, investing in prevention and tackling the social causes of ill-health;
- £10 billion per annum on infrastructure and green transition;
- £6 billion per annum for schools;
- £5 billion per annum to keep benefits ahead of inflation.
Before reading the section on leakage above, you might have thought that the nation’s problems were intractable. You might have believed that, sadly, and in some mysterious way, we have reached the point where we can no longer afford to remain a civilised country with an attractive social contract. The reality is that the myth of unaffordability is an all-purpose excuse for not doing the right thing. But it is not true. As Keynes pointed out:
“Assuredly we can afford this and much more. Anything we can actually do, we can afford. Once done, it is there. Nothing can take it from us. We are immeasurably richer than our predecessors. Is it not evident that some sophistry, some fallacy, governs our collective action if we are forced to be so much meaner than they in the embellishments of life?”
So, instead of the Budget we have just seen presented, we should have seen a good news Budget along these lines:
That Budget would begin the process of restoring progress in the UK: most years – even after inflation – most people would find themselves getting slightly better-off. Each year, the difference would be small but over a generation, it would be huge. From 1997-2010, despite the Global Financial Crisis, median earnings rose by 22%. Over an entire generation, that rate of increase would amount to around 45%. That makes a big difference. Our economic performance would stop its drift below our peers, and we could again become a prosperous Northern European country. Our healthcare system could return to its former status as the world’s best system. And we could tackle climate change.
That is the Budget we should have seen. And it was perfectly possible.
Conclusion
There is an enormous difference between the Budget we got and the Budget we should have had. The difference is big enough to maintain the UK on a path of regress when we should be getting back onto a path of progress. That is the key summary of this Budget.
And if you would like to know more, take a look at The 99% Organisation and join us.
