The Tories Are Too Weak to Make Big Cuts Now, So They’ve Pushed Them Into the Future
They briefed 'impending doom' to make whatever happened on the day seem better.
by James Meadway
17 November 2022
For all the talk in the weeks leading up to the autumn statement of “eye-watering” cuts that would be needed to fill a “fiscal black hole”, the event on the day fell short. There are still significant cuts baked into the government’s plans, but these have been largely pushed off into the future. The government will be sticking to its existing spending plans, which include some increases in funding, and adding slightly to them for schools and the NHS. Importantly, benefits payments and the state pension will be lifted in line with inflation, helping to (somewhat) protect those claiming against rising prices.
It’s embarrassing for the various commentators and journalists who ought to know better, yet got strung along by what was obviously expectation management from the government. Instead of talking up the “horrific” forecasts and the “£70bn fiscal hole” that demanded filling, they should have been interrogating the Tories’ claims. As has happened before, impending doom was briefed by government figures to make whatever happened on the day seem better – and, as has happened before, the Office for Budget Responsibility (OBR) produced a set of official economic forecasts that looked somewhat better than we had been told to expect.
Contrary to expectations, the OBR announced that the majority of cuts, relative to previous plans, will happen after 2024, with spending shrunk by £28bn by 2027. Compared to the size of the economy, this falls significantly short of the kind of spending cuts we saw under the Tory-led Coalition of 2010-15.
More significant, this time round, are the tax rises, with Hunt leading on the reduction of the threshold over which someone pays the higher 45p rate from £150,000 to £125,000 – or moving it from covering the top 1% to roughly the top 2%. The energy windfall tax will be extended, bringing in another £14bn; dividends taxes will be increased; and the tax-free allowance for capital gains (profits on selling things like shares or antiques or a house a landlord rents out) will be brought downwards. It’s not exactly soaking the rich – there’s a big cut in taxes for banks buried away in the official documents, from 8% extra tax to 3%.
So for the next three years or so, it’s a mix of somewhat increased spending in “protected” areas like the NHS and schools, and somewhat higher taxes. After 2024, however, the picture shifts. The “thresholds” – different rates at which people pay different income taxes – will be frozen, instead of increasing with inflation. This means many more people are likely to find themselves paying higher taxes at a time when inflation is still projected to remain high – well above wage and salary increases. The spending cuts will then also kick in, leading to potential real-terms, per-person cuts in departments that have not been “protected” by the government, like local authorities. But all of this is supposed to take place after the next election – due in January 2025 at the very latest.
Helpful chart showing this from @samueltombs 👇 https://t.co/aEuWRHcrN2 pic.twitter.com/fttKZkcgHA
— Ben Chu (@BenChu_) November 17, 2022
To be clear, this chicanery and slipperiness is all about politics. It’s about trying to dump cuts on Labour so they will (the Tories hope) tie themselves up in knots working out whether to support them or not going into the next election – just as George Osborne did, very successfully, to the party in 2015. It’s a measure of just how far Corbynism shifted the dial on the economy that the Tories are not confident enough to jam through cuts now, instead having to ease off and even increase taxes on some rich people. Labour, too, has been shaped by the impact of austerity and Corbynism, its frontbench so far not conceding any ground on the need for cuts.
But early reports of shadow chief secretary Pat McFadden apparently accepting the damaging Tory target for debt are worrying. The target is inherently flawed – if a fiscal rule must be found, focusing on current borrowing, not the total amount of debt, makes more sense, not least because this creates enough room to allow for more investment spending on renewable infrastructure, railways, new schools and so on. It’s not too late for the party to switch its position.
The projections for wages and salaries, meanwhile, are dreadful. Although inflation is likely to come down from its peak this month, with natural gas prices falling since the summer, the rising prices of food and, for those who rent, accommodation are still imposing a hard squeeze. We are unlikely to see an improvement in most people’s living standards for many years, even with the increase in the minimum wage – welcome, but not quite matching the current rate of inflation and well short of the £15 an hour that is needed to compensate for past underperformance. Union organisation and action will be essential to break the poverty pay system in Britain, because the government very obviously won’t.
It’s the politics of austerity that are shaping the autumn statement. The Tories know full well that not only are spending cuts deeply unpopular, but dumping sneak tax rises on the majority of income taxpayers is also unlikely to make them popular. So they’ve pushed big changes off into the future until after the next election. This is a sign of their grave weakness as a government. Despite an 80-seat majority, the Tories are now a party riven by factions and personal animosities with no clear plan for the future beyond the next few years. Rishi Sunak appointing, and then sacking, Gavin Williamson was one symptom of that; his reappointment of Suella Braverman, barely a week after she was sacked for a national security breach, is another.
That weakness will determine what happens over the next few years, in the uneasy balance between a weak government that can only crisis manage day-to-day, and a weak economy battered by huge global forces. The uneasy balance could be put to the test again as early as April next year, when the next domestic energy price hike is tabled to happen, today announced as expected to reach £3,000 for the typical household. On top of continuing high rates of inflation, and low forecast wage and salary rises, this has the potential to become another political crisis. So, too, do the demands for inflation-matching pay rises from across the public sector, with nurses and civil servants set to walk out.
If Labour is tempted to do its own version of crisis management, hoping to sit this one out until the next election falls into its lap, it will fall short. Tweaks to a failing system won’t break us out of the “doom loop” that even Jeremy Hunt, in his speech today, suggested we were trapped in: of a failing economy leading to demands for austerity, which worsen the failures and provoke more demands for austerity. Labour will either propose a bold break with the past, centred on a big investment increase, addressing the dramatic inequalities of wealth through taxation, and properly funded public services to meet the challenges of ecological crisis and an ageing population. Or else it will find itself also tied to the spiral of decline and failure that is Britain’s fate.
James Meadway is an economist and Novara Media columnist.