Sunak signals austerity lite

Labour needs a comprehensive alternative vision

Rishi Sunak has spilled the beans to the Sunday Times on the tax-raising measures he plans for this week’s Budget. The details mean the Labour leadership and the left should stop arguing about corporation tax and start arguing with the British people about an alternative.

Sunak further stimulus plans include:

  • £15bn to extend furlough, VAT exemptions etc until the end of June
  • £22bn capital/guarantees for national infrastructure bank
  • £5bn in grants to small businesses hit by the lockdown
  • a £94bn “green savings bond” to raise money targeted at offshore wind, energy storage etc

But the payload of the Budget leak is a set of tax raising measures backed by an argument. Before it thinks about opposing the tax raising measures, Labour has to think about defeating the argument.

The argument is that we have to stabilise debt at 100% of GDP, by either cutting £43 billion from regular public spending — 2% of GDP — or raising the equivalent in tax. The rationale for the argument, boosted as usual by the neoliberals at the Institute for Fiscal Studies, is that a debt/GDP ratio of 100% risks Britain being engulfed by rising interest payments, as the global cost of borrowing rises.

The task of the left is to repudiate this logic.

First, a country with its own currency cannot go bust. Its central bank can create money — as the Bank of England has done in 2020/21 — with the explicit aim of keeping the interest paid on government debt low.

That’s the argument Labourism just doesn’t want to make. Because since the 1930s British social democracy has never understood monetary policy. It’s an intellectual black hole for the left, which can only think about taxing and spending, never confidently about borrowing and money creation.

Second, because “balancing the books in fear of the bond vigilantes” always leads to the logic of austerity. Sunak wanted to hike corporation tax to 25% this year, flattening the recovery, but was dissuaded by Johnson. The £43 billion in planned tax rises will come from:

  • freezing income tax allowances, so that as people’s wages rise, HMRC collects an extra £6bn a year by 2024
  • cutting overseas aid by £4bn (already announced)
  • and a phased in rise in corporation tax netting — says the Sunday Times — £22bn by 2024.

For the eagle eyed, that leaves at least £20bn more either to be cut from spending or raised as tax. Conveniently this was not briefed to the Sunday Times.

That is an austerity budget and Labour’s job is to oppose it to attack its logic, projecting a broad alternative and a much more ambitious vision.

Unfortunately you can’t do this without policies.

Sunak’s proposed stimulus plan is totally inadequate, both for meeting the zero net carbon target and for restructuring the UK economy in a way that starts to produce social jusice, not the rampant poverty and unfairness of the present.

His £20bn offer on offshore wind contrasts to Labour’s £88bn at the last election. Joe Biden’s $1.9 trillion stimulus, on top of $3 trillion spent by Trump during the pandemic, shows the minimum scale of the ambition a progressive government should have in this phase.

Translated like for like into the UK economy, it would mean borrowing and spending an extra £200bn in the short term, investing in public transport, green energy, skills and social housing — roughly in line with what Labour would have spent under Jeremy Corbyn’s 2019 manifesto.

Like the 60% and 75% debt to GDP thresholds that preceded it, “100% debt-to-GDP” is just an arbitrarily chosen number to justify austerity, privatisation and inequality. America’s debt levels will go way above 100%; Japan’s debt stands at 266% and Italy’s at 134%.

“How will we pay back the debt?” is the dumb question retailed by TV journalists everytime there is any serious proposal to rectify social injustice through spending, or invest massively in decarbonisation.

There is a very simple answer: the people of the future will pay it back, if and when we discover a form of capitalism that boosts incomes and productivity, instead of stagnation and inequality, and once we have stabilised the planet’s climate.

If you accept the classic 1980s left formulation “who’s going to pay for the crisis?”, well in a capitalist society you already know the answer: the workers. Nobody needs to “pay” for the Covid stimulus in the short term. Nobody needs to “pay” now for decarbonising the world. Capitalism is already living off the oxygen of central bank monetisation, and no major country plans to reverse out of rising debt levels and quantitative easing.

That’s why the left spending a week moaning about Starmer being “to the right of the Tories” was a waste of everyone’s time.

Labour’s opposition to the coming Budget should be framed on principles: the pandemic hit us hardest because the Tories spent 11 years undermining the NHS, council services and social resilience. It’s even now hitting poor communities hardest because of the structural racism the Tories don’t care about, and tacitly encourage.

So a Labour alternative would be to borrow, to create money and to go on spending, even as the economy recovers, so that instead of a bunch of rip-off mortgage deals, young people have a guaranteed right to an affordable social home; so that the entire housing stock of Britain can be re-engineered for no-carbon energy.

If Sunak proposes to raise income tax take by freezing allowances, Labour should oppose it.

If Sunak proposes to raise corporation tax from 19 to 22%, Labour should oppose it — not because we’re against redistribution — but because we’re against the Finance Bill.

A Labour alternative budget would look, for certain, at windfall taxes, and — as the recovery kicks in — corporation tax rises. But business income taxes are not the only, nor even the main tool a left social democratic government would use to trigger massive redistribution. It would have to tax assets, it would renationalise the central bank and — if subject to co-ordinated runs by the global financial markets — it would need capital controls.

With an active industrial strategy pouring money into the ex-industrial areas, a left-wing Labour government would squash property speculation and tax the assets of the rich: through capital gains tax, inheritance tax and a massive clampdown on offshore finance. It might well also incentivise high-value and productive businesses through targeted tax reliefs and business rate cuts.

Unless you start here, and not from minor tweaks to business taxes that are routinely avoided by big tech, the super-rich and the global financial monopolies, you’re always going to be trapped in the “who pays?” question.

Labour’s main job faced with Sunak’s budget is to realise, for sure, as Owen Jones argues that we’re no longer facing the kneejerk austerians of the Cameron/Clegg era: the Tories are prepared to use the state to hand dollops of cash to their private contracting buddies, and to boost the military.

But the scale of what they want to do with state intervention is a) meagre compared to the urgency of climate change b) inadequate when it comes to redistribution. Making a fetish out of opposing them on Corporation Tax, as Starmer seems to be set on, or supporting them, as the Socialist Campaign Group does, is a pointless exercise.

There’s only one place for a Labour MP when the Finance Bill is voted on, and that’s in the No Lobby.

But what matters is the arguments you deploy as you do so.

The Tories will use this budget to frame a political argument with voters. Unless Labour has a clear, bold vision and offer to counterpose to it, then you’re just playing catch-up. And as the Sunday Times leakers have briefed: Johnson may not wait until 2024: he may use the recovery phase to go for an early election in 2023.

So the left needs to end its melancholy running commentary on Starmer and propose an alternative. A clear left alternative to the Budget could be written on one side of A4 and hammered home in every speech, every TV interview next week. If you don’t like what Starmer’s doing, then at least go beyond the details and set out a full left alternative — and campaign for it on the doorstep, independent of the party apparatus.

As for the Labour leadership, it has got one thing right: you don’t do austerity in a crisis. But it needs now to say what the alternative to austerity is: massive extra borrowing, massive targeted investment and decisive use of monetary sovereignty to underpin it.

Journalist, writer and film-maker. Former economics editor at BBC Newsnight. Author of How To Stop Fascism, published May 2021.

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