Chancellor Rishi Sunak has outlined perhaps the most surprising Tory budget in a generation. And yet it wasn’t surprising, given the scale and extent of the challenges the Tories now face – from Brexit to the potential fragmenting of the union, coronavirus, and a seemingly inevitable recession.
Under a Labour government led by Jeremy Corbyn things would have been significantly different. But Wednesday’s budget undoubtedly reflects how, in recent years, Labour transformed the debate on austerity. Among the clique surrounding Boris Johnson, the fetish for deficit elimination is gone – which partly explains why Sajid Javid was pushed out last month – and state intervention is acceptable in a manner not witnessed since the Gordon Brown government in response to the 2008 crisis.
There were some outright nods to Corbynism and Labour’s last manifesto from Sunak: a new stamp duty surcharge of 2% on non-UK nationals will create around £650m to deal with homelessness. Meanwhile taxes on sanitary products, frequently referred to as ‘the tampon tax’, will be scrapped, and entrepreneur’s tax relief will be reformed – raising £6bn over the next five years.
As important is how the chancellor is preparing the way to change constrictive fiscal rules in the near future, announcing a review which will almost certainly give him and the government more room for manoeuvre on tax-and-spend in the coming years. Such a shift wasn’t just unthinkable for his predecessor Javid, but also the likes of Philip Hammond and George Osborne. It’s no surprise, then, that among some Tories Wednesday’s budget, and the new sense of direction, has grated. Theresa May offered a glimpse of that, reportedly saying: “While spending a lot of money may be popular… there is of course that necessity of having a realistic assessment of the longer-term impact of those decisions”. May, like Osborne and Hammond, is yesterday’s news however, and with Dominic Cummings and Johnson intent on retaining formerly Labour seats in the Midlands and North, they will simply ignore her.
What we are now seeing is the emergence of a new orthodoxy in the Tory party, one which isn’t a break with neoliberalism, but does explicitly embrace economic nationalism and can live with deficit-financed growth. It is a marriage of convenience, combining Johnson’s frequently acknowledged love of infrastructure, Cummings fondness for popular policies and the record low rates at which Britain can borrow. Despite what some on the Labour benches say, the position of their party at the last election when it came to public spending was popular. Perhaps if the likes of Tom Watson and Wes Streeting had the discipline of Jacob Rees-Mogg, an ideological libertarian on matters of economic policy, they would have been on the government benches after 2017.
There were also hints of ‘red UKIP’ in the budget, by which I mean the kinds of policy which Labour would never propose – nor should they – but which are economically populist, while discriminating against foreign nationals or ethnic minorities. The outstanding example here is the Immigration Health Surcharge of £624 per person (£470 for children) which will be extended to EEA nationals from next year. This is expected to raise an annual £360m a year by 2024, and represents a historic shift in how Europeans who choose to live and work in the UK will access the NHS. To be clear, this charge wouldn’t be paid on using the NHS, but is instead a one-off payment on top of visas which are a prerequisite for living and working in Britain. It is basically a health tax on foreigners, regardless of what they earn and whether they even use the services.
While there is little evidence of joined-up thinking on climate change, spending on flood defences over the next five years is projected to double. The perception of responding to challenges like flooding, as well as being on the public’s side when it comes to working class perennials like alcohol and fuel tax – both of which have been frozen – now matter more to the Tories than balancing the budget. This is new and while there were hints of it in recent years the scale of this budget is significant. How far they are willing to go with this depends on just how much Sunak successfully changes budgetary rules in the near future – but with five years and a big majority, things need not be too rushed. One suspects the budget is just the start.
While austerity might not be over – we are still seeing a major erosion in many public services – the Tories have actively chosen to politicise the budget. Gone is the neoliberal frame of ‘necessity’, and the sphere of economics being detached from that of popular consent. This represents an opportunity for Labour and reflects the successful efforts of John McDonnell and Corbyn in shaping the debate in recent years – regardless of what their detractors might say.
The budget also highlights how austerity, certainly on the scale witnessed after 2010, was a political choice rather than an economic necessity. In the run-up to that year’s general election, the Tory opposition, with help from the rightwing press, turned a single – albeit significant – issue into an all-encompassing conversation about the future of Britain’s economy and its public services. Sadly Labour capitulated to that. While that would mean the Tories entered government, the overhead was dramatic, with living standards and productivity stagnating for a decade, home ownership falling to levels last seen in the 1980s and, for the poor, declines in life expectancy.
It remains to be seen how sustained this new direction can be: deficit financed growth commands little consent within the party ranks, and it likely won’t be enough to avert a recession this year. What is more, the spectre of a hard Brexit has not gone away. Most important of all, this is far from a sustained response to generational challenges like housing, elderly care and the climate. Yet, in the short term, the average voter will feel the benefits of reduced interest rates (as a result of Bank of England action on Wednesday morning), freezes on fuel duty, some relief on business rates and the minimum wage rising to £10.40 by 2024. After 13 years of stagnant wages we may even see pay rise year-on-year. This matters.
All of which poses intriguing questions to Labour’s leadership hopefuls, particularly Keir Starmer. His pitch has been one of ‘values’, with media supporters like Paul Mason implying his approach to Johnson should resemble that of the ‘resistance’ in the United States to Donald Trump. And yet this makes little sense if the Tories are serious in shifting to the centre on economic policy – and leaves Starmer, and indeed most of Labour’s centre and right, with no discernible USP on the economy. Johnson is offering the red wall better roads and trains, and pay will rise for the first time since the crash. Any response to that can not be based on repeating words like ‘decency’ and ‘electable’. If Starmer fails to have a clear offer on the political economy of post-Brexit Britain, which is something we’ve not seen so far, then the losses of last December will be followed by more next time round.
Did Sunak just end austerity? No. Is Britain now adequately preparing for the panoply of crises set to define the coming decades? Also no. But make no mistake, this was the first Tory budget since 2010 which wasn’t defined by fiscal realism. That demonstrates how Labour under Corbyn won certain arguments – the question is if its next leader will continue to make headway in areas of equal importance, from housing to climate change.
Aaron Bastani is a Novara Media contributing editor and co-founder.