By KD Tait
Chancellor Rachel Reeves spent much of her Budget speech hammering the Tories and promising an end to austerity. The headline figures were enough to elicit gushing responses from the leaders of the TUC and Unison.
Millions of poorly paid workers and carers will feel an improvement in the form of a higher minimum wage and changes to the carers’ allowance threshold from April 2025 onwards.
But delving into the figures shows that while this was the second biggest tax raising budget since 1993, it is far from the ‘most transformative budget in Labour history’ that was promised.
It leaves the fundamental architecture of a shrinking welfare state in place, avoided raising taxes on the rich, or taxing unearned wealth at the same rate as wages, or addressing the vast sums of public money that is funnelled directly into enriching corporate giants, landlords, and outsourcing companies profiteering from public contracts.
There was no reversal of the two-child benefit cap which campaigners have pointed out is the quickest and cheapest way to immediately lift millions of children above the poverty line.
The winter fuel cap will be scrapped; there will be a major crackdown on welfare payments targeting the sick. Public transport fees will be hiked, with bus fares rising 50% and train fares 5% – despite the freeze on petrol duty being retained.
The £22bn increase for NHS day-to-day running and £3.1bn for capital spending sounds good compared to the Tories but it is only the historic average rise. But ‘reforms will start straight away’.
The increase to carer’s allowance will also be welcome for tens of thousands of mainly women forced to care for relatives, it can’t mask the glaring absence of any plan whatsoever to address the crisis in social care.
Daniel Kebede, head of the teachers’ NEU union, welcomed the £2.3bn for school funding and £6.7bn to tackle the crumbling concrete crisis—but £1bn for SEND will come from the already stretched existing budget. This will not halt the string of school closures, due to falling rolls.
The national minimum wage will rise by 6.7% for over 21s and 16% for younger workers. This is a big win for 1.5m low-paid workers but is still significantly lower than the Low Wage Foundation figures, pegged to real costs of living rises and far below the trade union demand for £15 an hour.
Most of the money will come from manipulating the ‘fiscal rules’ to change how debt targets are calculated and raising employers National Insurance contributions. But Britain will still have the lowest capital gains tax in Europe, and employer NI contributions will be passed on to workers in the form of lower wages, fewer jobs and higher prices.
When Wes Streeting and other ministers talk of paying for these budget increases with ‘reforms’, they mean making public services run more like a business, both in terms of maximising efficiency and maximising the opportunity for private profit.
This quiet part was even said out loud by Phones4U founder John Caudwell a former Tory donor turned Labour backer, who said, ‘the budget shows the government has got the memo’ about making the country ‘run like a business’ with ‘root and branch reform of the public sector needed’.
It is this promise of major reform to the public sector that is designed to convince markets to accept Labour’s dramatic hiking of taxes and borrowing.
The speech drew a relatively muted initial response from markets, at least compared to the turbulence of recent disasters. But as world markets responded, Britain’s debt costs rose. Volatile debt markets can move up and down, but even small changes can wipe out the ‘headroom’ that changes to her fiscal rules have given the chancellor.
Labour has staked its creditability on ‘restoring confidence’ through stable government and economic competence.
But even the official government watchdog the OBR refused to fully confirm the existence of Reeves’ £22bn ‘black hole’, while the IFS suggested the Chancellor will need another £9bn just to keep public services standing still.
And this is the problem. By refusing to make inroads into the vast wealth swilling around the upper reaches of Britain, where the richest 50 families are worth £500bn, Labour is gambling on an avalanche of private investment and growth generation that is fundamentally uncertain, even if we leave out external political shocks.
Major reforms to infrastructure have been left unfunded or in the hands of vested interests who have proved their inability to deliver. For example, councils can at last keep all the money from selling off council homes, but this won’t fund 300,000 new homes a year and housing associations say they cannot afford to invest heavily.
Yes, HS2 will now go to Euston. But nearly £60bn a year is still funnelled into the pockets of landlords through housing benefit, and the ending of some passenger franchises will not lower fares or end the profiteering and fragmentation on the railways that blocks a decisive shift away from cars.
Overall, despite headline grabbing figures, the big headlines are what is missing: no reform to the major crises in higher education, local government or housing; no big increase in the climate transition; and as even optimistic official forecasts show modest returns in growth for this spending spree, workers are going to be paying for it with declining living standards for years to come.
The spending and borrowing has all been frontloaded, with the budget planning for a fall in investment in three years’ time. A budget based on concessions to the city has wasted the best opportunity to deliver the ‘change’ that Starmer promised.
The reason is that delivering real change would mean uprooting powerful vested interests that have rooted themselves into every part of the economy and political institutions, such that important social democratic are politically as well as financially off limits.
So where are the opposition voices? While there were rumblings of discontent from cabinet members, leaking stories to get their own way in pre-budget negotiations, the truth is there is no serious opposition within the party either, because there is no credible alternative political project.
The big centre-right unions appear to be in not much of a hurry to put up a fight. That goes for the supposedly more left wing unions. Matt Wrack of the FBU and Sharon Graham, Unite, objected to this or that policy but broadly welcomed the news.
In many ways this was a typical 21st century Labour budget. It is not a ‘return to austerity’ but it is a continuation with the guardrails set by the Tory and Lib-Dem assault on the welfare state. Starmer and Reeves are also sticking closely to Blair and Brown’s New Labour handbook.
Public investment will be tied to private profiteering. State intervention will leave all the decisive questions like steel, oil, climate transition, etc. in the hands of big business. And they will use a small carrot and big stick (or syringe!) to get the unemployed, sick and older workers back into the labour market.
It will be up to the politicised rank and file of the unions and the social movements to make these points and prepare the working class for a fightback.