FRFI 184 April / May 2005

Chancellor Brown’s ninth budget was presented to Parliament 50 days before an expected general election on 5 May. It is designed to get crucial voters back on board in a period of rapidly deteriorating public finances and with millions of voters threatening to desert the Labour Party after its shameless imperialist intervention in Iraq. That is no easy task, as David Yaffe reports.

Brown is constrained by Labour’s neo-liberal agenda, his ‘prudent’ fiscal rules needed to satisfy the interests of banking and multinational capital, which govern Labour’s economic policy. His so-called ‘golden rule’ demands a low and stable public debt-to-GDP ratio, while the current budget has to be balanced over the economic cycle. (Borrowing to invest is permitted as long as public debt is kept below 40% of GDP). At the same time Brown has already committed the majority of the public funds made available on this basis to health and education, spending necessary to keep significant sections of the middle and upper working class voting Labour. In addition there is the rapidly growing expenditure needed to finance Britain’s imperialist intervention in Iraq. Brown has very little room for manoeuvre, but manoeuvre he must to keep this rotten imperialist government in power.

Poor at statistics
Britain, said Brown, starting his budget speech, is ‘experiencing the longest period of economic growth since records began in 1701’. There have been nearly 13 years of continuous economic growth, with low inflation, low interest rates and low unemployment and living standards rising 3% a year on average since 1997, when Labour took office. Yet Brown tells us that any ‘fiscal loosening’ this year ‘would risk a return to high inflation, high interest rates, stop-go and short-termism of the past and put long-term stability at risk’. So how bad is it really?

The government has an estimated deficit of £16bn in the current financial year, £6bn higher than expected only a year ago. It would have been higher still if the government had not failed to invest an already allocated £4bn in Britain’s crumbling public infrastructure. To finance its current expenditure the government borrowed £34.4bn. In 2001 Brown predicted he would borrow £16bn over this parliament. He has borrowed £95bn and on present plans will borrow £112bn over the next parliament. Not very prudent and very poor at predictions. However Brown claims that he will meet his ‘golden rule’ over the seven-year economic cycle ending next year with an improbable current expenditure surplus of £6bn. This budget will see, as a result, a small fiscal tightening (tax receipts will be greater than increased spending) of £265m despite the coming general election. Public finances have deteriorated precisely because Labour refuses to raise income tax on high income earners, and has significantly reduced capital gains tax on investments and corporation tax on highly profitable banks and corporations.

Wooing potential voters

With little room for manoeuvre, the budget targeted tax and spending cuts at what Labour sees as potential voters. There are 11 million pensioners in Britain and they are more likely to vote than the average voter. 70% of over 65s voted in 2001 compared to an average overall turnout of 59.4%. So pensioners have been offered free off peak local bus passes and the over 65s a £200 council tax rebate for one year only. Millions of poor pensioners who do not pay council tax lose out. Together the cost will be some £1.25bn over the next financial year. In addition Pension credit will rise by 13% by 2008 in line with earnings and reach £119 a week, still leaving millions of pensioners on the poverty line. The basic pension will continue to rise with prices and therefore fall as a percentage of average earnings. Governments have saved around £30bn alone between 1979 and 1996 after the link between pensions and earnings was broken by the Tories. Labour refuses to restore it. Two million pensioners still live in abject poverty and a high percentage of the rest exists on the poverty line.

The budget also increased child tax credits in line with earnings increasing payments by 13% over three years. This will affect working families with children and cost £740m over three years. This is Labour’s gesture to what it regards as the ‘deserving’ poor. The ‘undeserving’ poor will continue to be harassed with the government considering a fixed fine for people on unemployment benefit who fail to look for work. Working families with no children and working families with grown up children are not on Brown’s list of handouts.

The doubling of the level at which stamp duty is paid on residential property to £120,000 and the above inflation increase of the threshold before inheritance tax is paid is designed to attract middle class voters. The fuel duty increase in line with inflation has been put on hold until September in order not to annoy car and lorry drivers before the election.

The increased spending will be financed from bringing forward tax payments due from North Sea Oil companies (£1.1bn), new tax avoidance measures (£1bn) and increased stamp duty on commercial properties in disadvantaged areas (£265m). These are small tax increases to finance small spending increases. Last year alone £4.9bn was spent on the war in Iraq and Afghanistan and on so-called counter terrorist operations, with an extra £400m for this financial year. Money is always readily available for the real priorities of imperialist governments.

Not highlighted in the budget

Brown’s projections for future public spending depend on the state of the British economy over the next few years. What were not highlighted in the budget were Britain’s record trade deficit of £42bn and the rapidly growing current account deficit expected to reach £38bn in 2007. Nor was the record household debt of 140% of income, higher than that in the US and most other large European countries. That almost 1m jobs have been lost from manufacturing since Labour took power in 1997 didn’t get a mention. Nor did the fact that inequality in Britain has continually grown with Labour in office, with the top 1% increasing their share of national wealth from 20% to 23% and the bottom 10% seeing their share fall from 7% to 5%.

Labour will continue to privatise public services and public assets. Foundation hospitals will be able to compete for patients outside their catchment area from 2006. Schools will continue to be handed over to private sector sponsors, who will pay less than one-tenth of their cost for a large degree of control of the schools curriculum, ethos and staffing. The government will continue to sell off public assets with a further £14bn worth to be disposed of in the next few years.

The budget should deceive no one. It is the shameless expression of a reactionary government that intends to stay in power at the next general election.