FRFI 196 April / May 2007
Budget for a parasitic and decaying capitalism
Gordon Brown’s eleventh and last budget speech was designed to take the wind out of the sails of David Cameron, the new Tory pretender. With barely a hair’s breadth separating the policies of the two main imperialist parties, Brown’s budget challenged the Tories on their home turf by announcing a 2p cut in both corporation and income tax rates from April 2008. The cut in the rate of income tax from 22p to 20p in the pound – the lowest basic rate for 75 years – was theatrically announced at the end of his budget speech.
This was not a tax cutting budget. If anything, overall taxes will rise in 2008-09 once the announced changes kick in. Brown is rigidly constrained by Labour’s neo-liberal agenda; the ‘fiscal discipline’ needed to promote the interests of banking and multinational capital at the heart of Labour’s economic policy. So the income tax cut will largely be paid for by removing the 10p starting rate – hitting low paid workers – and by aligning national insurance and tax rates at the higher rate tax level. The costs from the cut in corporation tax on businesses from 30p to 28p are to be recovered by significantly reducing the capital allowance per year on investment in plant and machinery from 25% to 20% and by increasing the corporation tax on small businesses from 19% to 22%.
On the spending side Brown has produced the tightest spending round for many years. Education spending, the new ‘priority’, will see a real annual increase of only 2.5% a year to 2010-11, a significant slowdown on the 4.4% real annual increase since 2000. Home Office expenditure will be frozen, Revenue and Customs and Work and Pensions will be cut by 5% a year in real terms. Public sector pay will be cut with pay rises below the rate of inflation.
Military spending will continue to rise next year with an extra £400m pencilled in to pay for the continuing war in Iraq and Afghanistan. Military operations in Iraq and Afghanistan cost £1.7bn last year bringing the overall total on these ‘international commitments’ so far to £7.4bn. Defending Britain’s imperialist interests throughout the world is the top priority for the Labour government and, whatever the economic constraints, the necessary funds will be found.
So who were the winners and losers from this budget? Following income tax changes, the main losers are low-paid workers unable to claim tax credits and earning between £5,225 and £18,610 a year, including single adults with no children earning less than £18,500 a year. This group has been hit hardest by the abolition of the 10p band. The winners are those earning between £18,500 and £39,000, many in the richest 10% of households. The rise in income from increased tax allowances for pensioners over 65 will almost certainly be wiped out by the increases in council tax and the massive rises in the price of fuel.
Most significant are the winners from the changes in capital allowances and the cut in corporation tax. They were the highly profitable multinational companies, and particularly the international banks in the booming financial services sector and the City. Stephen Green, chairman of HSBC, spoke for them all when he said: ‘We continue to see London as the crossroads of the world and the premier international financial services sector. The news on corporation tax is a very welcome boost for business and one which serves to further enhance London’s competitiveness’. The losers were small businesses and manufacturing and other companies investing in plant and machinery in Britain. As one director of a Birmingham-based steel processor put it: ‘[The budget] is an insult to the country’s manufacturing base’. Such is the nature of British capitalism.
Gordon Brown made all this clear in his budget speech. ‘Britain must champion open markets and free trade – an open and inclusive globalisation, not protectionism’. This then is his final budget in the service of a parasitic and decaying capitalism before he takes over from Blair.