Rachel Reeves has delivered her first budget. She did probably about as well as she could do, having chosen to tie one hand behind her back and accept neoliberal orthodoxy. Okay, some big words there.
Political spin doctors like to make things both extremely complicated and mind-numbingly dumbed-down. That’s why we have “maxed out the credit card” and “fixing the foundations” alongside “iron-clad fiscal rules” and “10 year gilt yields”. They avoid the bit in the middle – actually explaining things.
Orthodoxy is from the Greek, meaning “correct opinion.” It is the opinion of the establishment. Anyone challenging it is labelled a troublemaker or heretic. It’s true because people with power and influence say it’s true, whether or not it corresponds with reality.
Neoliberalism boils down to simple proposition. Let rich people invest in whatever way works for them. After all, if they didn’t know what they were doing, they wouldn’t be rich.
It is not free-market economics. Neoliberalism uses the state to protect the interests of the wealthy. Using taxpayers to subsidise their corporations. Using laws to protect their monopolies. Setting up cash cows like PFI. Creating regulatory frameworks so they can’t go to jail for dumping tonnes of sewage into rivers. It is the capture of the state by the megarich.
The big hitter in the budget was a large increase in Employers National Insurance Contributions (ENICs). Untouched was tax on global tech giants, tax on PFI income, or a Robin Hood tax on financial transactions. Capital gains was not equalised with income tax. So you are still taxed more for working for a living than for unearned income. And there was no wealth tax on assets over £10 million, despite 78% of Britons supporting one. This would raise a minimum of £24 billion a year, and is hard to dodge.
There was no attempt to stop our utilities and infrastructure being used as cash cows for the megarich.
Taxing ENICs seems like a tax on business. But it’s specifically a tax on employment. Businesses that make wads of cash from just owning things, without employing people, are unaffected. Like private equity funds and hedge funds.
ENICs have risen from 13.8% to 15%, and are now charged on all wages above £5,000 a year threshold. The previous threshold was £9,100 a year. Employing someone on the median wage of £33,925 will now cost £4,339, a £913 increase. The Institute for Fiscal Studies has said around three-quarters of the cost will be passed on in the form of lower wages. Rachel Reeves conceded the point in a TV interview. So that’s £685 lower wages on average. Neoliberalism at work.
ENICs don’t just affect businesses. Charities and public services pay them too. The cost of employing teaching assistants and NHS admin staff has gone up. Care homes and GP surgeries under budget pressures will hire fewer people, pay lower wages, or both. In fact councils will pay £millions more to Treasury in ENICs for their care workers and street cleaners.
On the flip side, we saw £21.7 billion of cash subsidy going to oil giants BP, Equinor and Eni to continue their use of fossil fuels for a generation. They make around £40bn profit a year. Won’t somebody think of those poor CEOs!
On budget night private equity fund managers had a champagne party. Ms Reeves broke Labour’s manifesto commitment to close a tax loophole that allows them a lower rate of tax. It’s on p127 of Labour’s manifesto. Rather than raise £565 million a year, it will now raise £60 million a year on average. So that’s £2.5 billion in tax breaks over this Parliament to share between just 3,000 high net worth individuals. I wonder if any of them donated to the Labour Party.
Mr Sunak responded to the budget with a fiery speech about Ms Reeves’s dishonesty, but that’s basically shooting fish in a barrel. And the pot calling the kettle black.
We did not get an alternative economic viewpoint, just tribalism. They both support the 2 child benefit cap. There was no change on the Universal Credit taper, so anyone working part time on low wages will lose 55% of their minimum wage pay increases. That didn’t worry Rishi either.
Does it make Rachel Reeves cruel? She probably doesn’t think so. She probably imagines herself akin to a doctor delivering bad news. Cutting off the patient’s limb to save their life. But the 2 child benefit cap is cruel, and 100% driven by political cynicism. It would cost £2.5 billion a year to remove in the short term. Long term, it saves many times that in improved educational attainment, health, and reduced crime. But polling shows their “hero voters” like being tough on “benefit scroungers” – i.e. children in poverty, so in poverty those kids will remain.
This was Labour’s chance to redefine Britain’s government. To make the state work for the people. Instead they have redefined Labour. It is now Neo-Labour. So if you’re a cheerleader for Keir Starmer and Rachel Reeves, or even an apologist saying, “yeah, but the Tories are worse”, think of the system you’re enabling. We should not aspire to the lesser of two evils, but to good.
That’s not just my interpretation of neoliberalism, by the way. Friedrich Hayek, one of its intellectual prophets, said the competition of neoliberalism would establish an elite structure of successful individuals that would assume power in society, with these elites replacing the existing representative democracy acting on the behalf of the majority. Prophetic indeed.