A Welfare State for the Wealthy

Today’s Budget promised both additional spending and a shrinking of the state. These might seem contradictory – but they are part of the same plan: to funnel yet more wealth to Britain’s elite.

Chancellor of the Exchequer Rishi Sunak delivers his speech on day two of the Conservative Party Conference in Manchester on 4 October 2021. Credit: Ian Forsyth / Getty Images

‘Last year,’ Rishi Sunak stated in today’s speech, ‘the state grew to be over half the size of the total economy.’ This has, the Chancellor argued, forced us to reckon with some fundamental ‘moral’ questions about what kind of society we want to live in. Namely, ‘[d]o we want to live in a country where the response to every question is: “What is the government going to do about it?”’

Sunak stated that his aim was to cut spending and simultaneously reduce taxes to create a society in which ‘rewards work’. Balancing revenue with spending while attempting to cut taxation will create severe strains on public services that are already stretched to within an inch of their limits. This could be Rishi Sunak signalling that he intends to announce a return to austerity when this crisis is over.

The Chancellor’s arguments may seem like common sense, but they rely on several fallacies. Most of us will be familiar with the first: the government is not like a household and is not subject to any imperative to ‘balance its books’. States can issue currency and therefore cannot meaningfully ‘run out of money’.

In a country that can issue its own debt, and which has control over its own currency, the limits on government spending are resource-based, not monetary. Government spending is a way to put resources currently underutilised by the private sector to work: if businesses aren’t employing people, the state can step in to create employment. In doing so, it triggers higher rates of growth and ultimately creates the revenues needed to repay the initial borrowing over the long-term.

The real question to ask when it comes to state spending is not ‘how much’ but ‘who benefits?’ Rising government spending is not inherently progressive—as we’ve seen over the course of the pandemic. The state has stepped in to bail out big banks and big business, while millions lost their jobs, our public services became extremely stretched and inequality increased.

Rishi’s plan to balance the books while cutting taxes should be seen for what it is: an attempt to use the state to redistribute resources upwards, just like Cameron’s austerity programme before it.

The second fallacy is more significant. Sunak’s case for cuts to public spending is not simply economic but ‘moral’. He is not just arguing that it is economically unsustainable for government spending to be rising at current rates, but also that it is fundamentally unethical to create an economy so reliant on the state.

This is an argument that rests on a fallacious piece of neoliberal ideology: namely, that cutting taxes and spending is a way to reduce the size of the state.

Neoliberals claim to want to constrain the coercive power of the state in order to create space for interactions that take place within the market and civil society more generally. But the last forty years of neoliberal hegemony have seen state power grow, not shrink.

First, at a very basic level, cuts to public investment have constrained economic growth, undermining the tax base. This has meant that, even with significant cuts to taxation, taxation and spending as a proportion of GDP has not fallen as much as the neoliberals initially claimed it would.

Second, regulatory changes and privatisation have created an incredibly volatile economy subject to frequent crises. In each of these crises, the private sector looks to the state to clean up the mess. The frequency and size of public bailouts for private businesses and financial institutions has therefore increased substantially, leaving a permanent impact on the public finances.

Finally, and most importantly, a less generous state is not a less coercive state. In fact, neoliberalism has been associated with a dramatic increase in the influence of the state over almost every aspect over our daily lives.

Take deregulation. Neoliberals claimed that the changes introduced to financial regulation in the 1980s would liberate markets from unnecessary and burdensome state intervention.

But as the finance sector has grown and become more complex over the last forty years, the amount of regulation has increased sharply. What has changed is who benefits from this regulation—banks have generally found ways to profit from the new regulation introduced since the 1980s while working people bear the costs.

Equally, cuts to unemployment benefits are associated with a state that intrudes far more into the lives of benefits claimants. The introduction of Universal Credit, for example, has come with requirements that are arduous both for the claimant to meet and for the state to enforce.

Means testing is another example of a system introduced in an effort to shrink the state, but which actually ends up expanding it by creating a huge web of bureaucracy. The same can be said for outsourcing and PFI—the attempts to create ‘markets’ within the public sector have required massive legal, accounting, and financial interventions that have ended up making many outsourced services much more expensive to the public purse.

In fact, almost any intervention introduced to ‘shrink’ the state ends up expanding the control government officials are able to exercise over our lives.

At the same time, the technocratisation of government has dramatically reduced the power of the average citizen to hold state officials to account. Central bank independence, the outsourcing of public services and the centralisation of political decision making have all placed beyond the reach of the public.

Sunak was right to argue that we face some complex moral decisions about what kind of society we want to live in after the pandemic. But the question we face is not ‘more state or less?’; it is ‘whose state?’