10.11.2022

Highway to misery

The Tories are coming after us again with ‘Austerity 2.0’, writes Eddie Ford. But resistance is mounting in the form of increased strike action

Though none of this can be found in the Tories 2019 general election manifesto, the spending axe is about to fall with a new regime of austerity. Or at least this appears to be what Rishi Sunak and Jeremy Hunt are preparing to announce in the November 17 fiscal statement - though there could be an element of expectation management at play. By feeding the media with endless stories about how savage the cuts will be, perhaps we are meant to breathe a sigh of relief when the chancellor’s measures turn out to be slightly less savage than all the briefings suggested.

Anyway, Hunt has previously said the guiding principle will be that “those with the broadest shoulders should be asked to bear the greatest burden” - believe him or not. According to most media reports, the chancellor will be setting out tax rises and spending cuts totalling £60 billion: of which about £35 billion will be in cuts. Apparently, decisions on whether to raise benefits in line with inflation and whether to change the pensions triple lock are likely to be made within days, so that the Office for Budget Responsibility can factor them into their forecasts. Early drafts of the statement, if reports are reliable, strongly hint that the tax rises are likely to include freezing income tax thresholds and targeting dividend tax relief. Maybe giving us more clues, a paper from the think tank, Onward, founded by Sunak’s new deputy chief of staff, recommends that the prime minister should reform the tax system by abolishing inheritance tax relief, introducing higher council tax bands and raising capital gains tax rates. In the view of Tim Pitt - a former special advisor to both Philip Hammond and Sajid Javid, when they were chancellors - it is time that the Conservative Party moved on from “half-baked Thatcherism” and consign “Trussonomics” to the history books - “the nonsense that raising taxes is un-Conservative”. The history of Conservative economics over the last 200 years, he argues, is “littered” with Tory chancellors willing to raise taxes to put the public finances on a sustainable path.

On the other hand, backbench Tory MPs might not be so happy with that - especially coming from a self-proclaimed Thatcherite prime minister ideologically committed to lowering taxes. These MPs will probably be most worried by the reported plans for a raid on capital gains and pensions tax relief - never hit your electoral base. Targeting higher-rate pensions tax relief would affect those getting more than £50,270, who receive 40% tax relief on their pensions savings under the current system. Landlords, business owners and savers - normally the sort of people the Tories love to court - would also be hit by changes to capital gains rules, as there is likely to be a reduction in relief and allowances. Indeed, if it were changed to match income tax rates, capital gains has the potential to bring in billions. Actually, such a change was the top recommendation of the Office of Tax Simplification in 2020, but it was rejected by Sunak last year when he was chancellor. Also, it seems that tax thresholds will be frozen until 2028, two years later than previously planned. This could raise up to £5 billion a year, as high inflation drags more people into higher tax brackets or into paying tax for the first time. But that has already been labelled a “stealth tax” - anathema to so-called traditional Tory values.

Many people have been alarmed by the announcement that all capital spending is “under review” with an eye to saving billions on infrastructure projects. Downing Street had to deny reports that the new Sizewell C nuclear power station would be scrapped - something that had been particularly championed by Boris Johnson, of course. Not entirely convincingly, a Sunak spokesperson told reporters that “our position on Sizewell C has not changed” and “we hope to get a deal over the line as soon as possible”. OK, everything is clear now. As is always the case with nuclear projects, Sizewell C may cost at least double the original government estimates and is years behind schedule. Laughably, it had been hoped that it would be operational by Christmas 2017, but it is now expected to begin generating electricity in June 2027 - but no-one really believes that schedule either.

By all accounts, Hunt is said to be concerned with making sure that the measures taken give the treasury sufficient “headroom” for further economic shocks and ensuring the plans have market credibility - unlike Kwasi Kwarteng’s disastrous mini-budget. “Filling it to the pound isn’t credible”, as one treasury source said - a reference to the so-called fiscal “black hole” that the chancellor is desperate to plug.

We know this will be the case, even if scrapping Sizewell C and the HS2 rail network would hardly be a tragedy, because of the Bank of England’s dire forecasts that accompanied its latest hike in interest rates - the sharpest jump for three decades, that it blamed on higher energy prices and a tight labour market. Warning that the economy was already contracting and would experience the longest recession in a century, the BoE also said that Britain is likely to suffer an inflation peak of around 11% and a doubling of unemployment from 3.5% to 6.5%. Of course, if the Ukraine war fails to go to plan - or the US triggers a war against China over Taiwan - then things could turn out even worse.

Predictions

Even before the BoE’s latest predictions, most British workers must have thought that they were already on the highway to misery with falling real incomes alongside surging prices for food, energy and the other essentials. Sunak has said that he is prepared to help mortgage holders - perhaps through some sort of system of moratoriums or financial aid (what about renters?), but also stated that “everyone appreciates that the government cannot do everything”. So do not get your hopes up too high. As it happens, Nationwide - one of the country’s biggest mortgage lenders - has predicted in a “worst-case scenario” that house prices could fall by 30% (at last). Yes, if that happens, it will be easier to buy - but only if you are lucky enough to have a job with a reasonable wage in ‘Austerity 2.0’ Britain. In a recession, however, with rising unemployment and a sharp drop in people’s income, falling house prices will not provide much comfort - only make it easier for the rich to accumulate even more property. What was that about levelling up?

Finding and implementing cuts to public spending will be even more difficult - and hellish for services already cut to the bone. It has been bandied about that the treasury will try to hold down public-sector pay increases to just 2% in the next financial year, which would mean a massive real-terms pay cut for millions of workers already suffering from the cost-of-living crisis. This is another piece in the jigsaw of why the Tories are very unlikely to win the next general election: there are too many factors acting against them - some self-inflicted, some beyond their control. Yes, everything looks bleak for the Conservative Party, but that does not mean that Sir Keir Starmer will be inheriting an opportunity to scatter goodies and goodness across the land - almost the opposite, if anything. A Labour government coming to office in the near future would in all likelihood be handed wrecked government finances and failing public services. In other words, it would not be like 1997, when Tony Blair inherited a growing economy from the outgoing Tory government, which gave him the cash to hold down taxes while increasing spending on public services, and get Labour elected three successive times.

But what can Sunak actually cut? The national health service? A recent report splashed across the Financial Times shows how British people, in terms of access to NHS services, have the worst deal in Europe, which is clearly true. Seven million people are already on English waiting lists - 5.5 million of them for “potentially life-changing” treatment - and there is now an NHS that is malfunctioning in so many ways. So, instead of that, will they attack the unemployed, who are already on the breadline? Or how about education? If a recent snapshot survey by the National Association of Head Teachers is anything to go by, of the 11,000 respondents, 66% said they will have to make teaching assistants redundant or cut their hours due to the coming Tory cuts. Half say they could do the same for teachers. Many also warned they would have to reduce support for children, such as counselling for mental health issues, or extra help for individual pupils.

Feeling the asphyxiating squeeze, public-sector unions have been balloting their members for strike action over the winter - the Public and Commercial Services union is hoping to coordinate such action with other unions to make them more effective. You can see why. Some 85% of civil service members are currently experiencing detrimental physical or mental health, with 135,000 regularly skipping meals and 45,000 claiming in-work benefits - not to mention the 40,000 using foodbanks. The Royal College of Nursing, which historically used to be committed to a non-strike policy, is now about to take national action for the first time after a ballot of more than 300,000 members. This week the University and College Union announced that its planned national strike will be held in the last week of November, with staff at 150 universities across the UK taking industrial action over pay, working conditions and pensions. Then there are the on-off strikes by the rail unions.

Getting more unpopular by the minute, the Tories are heading for a tumultuous winter of discontent, with resistance mounting to the new age of austerity and cuts. This only increases the odds that they will desperately hang on to the very last moment in 2024 before calling a general election.

eddie.ford@weeklyworker.co.uk