The Tories have delivered yet another budget for the wealthy
There is something very odd about the government’s economic strategy. The popular wisdom is that fragile people need nourishment to aid recovery, but rather than investing in the social infrastructure the government has starved the economy of resources.
The claim was that forced starvation would lead to some yellow-brick road paved with economic riches and a massive reduction in the public debt. So far, none of the public borrowing targets have been met and the financial deficit is expected to hit £1.7 trillion in 2017-18 which is about 88.8 per cent of GDP.
The country desperately needs an economic strategy to stimulate the economy, but the government is mainly serving-up dollops of political dogma.
Nothing for normal people
Keynesian and neoliberal theories tell us that the less well-off spend a greater proportion of their income on everyday essentials and thus stimulate the economy to a greater extent than the wealthy individuals.
The disposable income at the bottom needs to be boosted but that is not what the government is doing. Workers’ wages fell by one per cent a year between 2008 and 2015. The UK was the only big advanced economy in which wages contracted while the economy expanded and the rates of profits grew. The UK is 103rd out of 112 in global ranking for real wage growth since the 2007-08 banking crash.
The government now says that ‘real household disposable incomes are expected to stagnate in 2017’ (see page 60 of this document). In 2014-15, 19 million people, including six million children and 1.8 million, were living on less than the Minimum Income Standard or were ‘just about managing’. It is estimated that a single person living in a rented flat outside London needs about £17,300 and a married couple with two children, living in social housing, need £37,000.
It is hard to discern any strategy for sustainable economic recovery and there is limit to what consumer spending can do as people’s savings are depleted and household debt is already at around £1.5 trillion. There are no worthwhile tax cuts for the less well-off. The increase in tax free personal allowance is small and will not even cover increases in the price of food, energy and local taxes. The increase in income tax threshold for higher marginal rates to £45,000 will only benefit about 15 per cent of workers.
Megabucks for corporations and the well-off
Last year, the government gave £800m million worth of tax cuts to wealthy elites because of the changes it made to the taxation of dividends. Now we know that 100 of the richest people alone befitted by over £1m each.
The details are buried on pages 111-13 of the document published by the Office for Budget Responsibility (OBR). The government is going ahead with the reductions in corporation tax to 17 per cent by 2020, the lowest ever. That is worth about £15bn to companies and will fuel more fat-cattery. There is no scrutiny of the £117bn of tax reliefs already handed out to corporations.
Companies claim to be socially responsible but will not provide the required infrastructure. A good example is the highly profitable telecommunications industry which has failed to provide good broadband services for many parts of the country. So the chancellor is giving them another £200 million to expand full-fibre services, and a further £400 million will follow.
This is not a repayable loan and the government is not acquiring an equity stake in the companies concerned. It is giving the money away even though the companies concerned keep the assets and the profits generated from the assets funded by taxpayers.
A hit to the self-employed and small businesses
For years the government encouraged people to become self-employed and set-up limited liability companies to take advantage of tax concessions. Many on zero contract hours or working in the gig economy have also been deemed to be self-employed.
A two per cent increase in National Insurance Contributions will hit low-income families hard. Self-employed, that is about 15 per cent of all workers, do not receive paternity pay, holiday pay and other benefits, and those trading through a company were permitted tax free dividends of up to £5,000, but that limit will not be reduced to £2,000.
Altogether an extra £2bn will be raised from the self-employed by 2021. The tax differentials between self-employed and those working for an employer will probably disappear soon, but equity demands that they should get the same social benefits. The government is silent on the latter.
The government’s claim that is it helping small business through reduction of business rates is not what it seems to be. Hammond claimed that he is offering some £423m of help to relieve the burden on businesses, but the small print in the papers released by the post-budget papers released by the treasury shows that the income from business rates is set to rise from the current figure of £28.8bn to £33.7bn by 2021-22.
The chancellor’s speech was also deceptive in other respects, like when he offered £1,000 business rate discount for just 2017-18 to pubs with a rateable value of less than £100,000. Before anyone could say cheers, the small print in treasury papers reveals that this won’t be available to the owners of multiple pubs.
Overall, there is little to cheer in the budget and the austerity measures are likely to be with us for some years to come. Brexit will add further uncertainties.
Prem Sikka is Emeritus Professor of Accounting at the University of Essex
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