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How the Left Should Respond to Sunak’s Budget

Yesterday's Budget increased spending, but did little to tackle a decade of attacks on living standards for workers – the Left's job now is to call the government's bluff on promises of a 'high wage economy.'

We need to be clear about three things coming out of Rishi Sunak’s Budget this week.

First, the era of austerity is over. The spending increases are real, and significant, amounting to £150bn across all departments, or about 3% a year for the next three years. For comparison, Labour in office averaged about 4% a year in spending increases, so Sunak is close to this mark—and certainly a long way from cuts across departments under George Osborne.

But, as Shadow Chancellor Rachel Reeves correctly argued in her immediate response, this increase in spending doesn’t even come close to undoing the damage of the preceding ten years of austerity. Take education spending—apparently a priority for the Prime Minister, who realised education cuts were a major driver of Labour’s vote surge in 2017. Per pupil funding will increase up to the end of this Parliament, so that by 2024 it will be back to the same level as 2010. That’s 14 years of going in a circle—an entire generation.

Or take the much-trumpeted 73 ‘family hubs’, intended to provide a one-stop shop for children and family services. These sound strikingly similar to Labour’s earlier Sure Start centres, which offered a convenient, one-stop shop for children and family services. Only difference being, Labour opened 1,300 Sure Start centres, which were then all closed by the Tories. The 73 family hubs don’t even come close to replacing them.

The spending increases are real. They’re not enough to make up for the damage the Tories inflicted. But we have to be clear: attacking the Tories for spending cuts is unlikely to work in the future.

Second, the Tories are still the Tories. Whatever else they do or say, the core of their party is about their own class interests. Rishi Sunak, himself a former banker, cut the taxes paid by banksjust as Barclays, for example, was reporting record profits. But he whacked up taxes for ordinary workers, leaving average households with an estimated £3,000 tax increase. He may have improved the generosity of the Universal Credit system slightly, meaning those moving into work lose less of their Universal Credit payments as a result. But this £3bn increase is a long way short of the £6bn, £20-a-week payment cut Sunak pushed through a month ago.

Workers lose out under the Tories, while the rich have profited handsomely from the pandemic. The Left needs to develop a rhetoric about taxes and the tax burden that zeroes in on the tax avoiders, the super-rich, and the profiteers, while offering fair, lower taxes to ordinary workers. I would favour reductions in VAT as a simple way to reduce the prices people face in the shops and on their energy bills. But cuts to income tax, like reintroducing the 10p starting rate, matched by tax rises for the richest, should also be part of our argument. And, of course, Council Tax remains a godawful mess.

Third, Sunak has taken a major gamble, and one that is unlikely to play out as he wishes. The theme of his speech was optimism. He wants to tell us how good things are going to be. But even the notoriously over-optimistic Office for Budget Responsibility—the government’s official forecasters – think pay is going to be seriously squeezed by inflation in the coming years. For most workers, after a decade of flat or even falling real pay, the next decade is forecast to be worryingly similar. The National Living Wage hike to £9.50 an hour isn’t enough to cope—we should be insisting on £10, right now, as a bare minimum, and pushing for the £15 an hour that Andy McDonald has called for.

Public and Private Sector Pay

Sunak says he will end the unnecessary public sector pay freeze he cruelly introduced in the middle of the pandemic, last year. Fine. But if departments are supposed to finance this themselves, out of their own budgets with no additional funding from the Treasury, this is a very thin promise indeed. It is not yet clear that the departmental budget increases will be enough to pay public sector workers properly, and ministers are already refusing to commit to pay rises.

The logic of the pay freeze was always flawed, with Sunak claiming that because some of those in the private sector had seen falling pay, those in the public sector had to also take a hit. But when the government is paying the wages and salaries of up to 9 million people on furlough, their pay has become the government’s responsibility. And if some 3 million people, mostly self-employed or workers on unusual contracts, like zero hours, fell through the cracks of coronavirus support, being pushed into the woeful welfare state safety net, that’s also the fault of government.

The Tories’ favourite trick on pay has been to try to play private sector workers off against those in the public sector. But even outside of the pandemic, the logic doesn’t work. The private sector in Britain—or any other developed country—cannot function without the public sector. There’s not a business in the country that doesn’t use, for example, the road network—paid for and serviced by different parts of government. A business employing people needs them to be trained and, especially now, healthy—but education and healthcare are provided overwhelmingly by the state. A business can’t exist without property that is legally protected, and contracts that can be enforced—again, this is a state function, in the form of police and the courts.

Far from being a kind of parasite on the private sector, as Tories imply, leeching resources off into fripperies like the NHS or schools, public sector services are essential to the operation of modern capitalism. And the taxes we pay reflect only a part of that relationship, with the rest of the flows of services provided by the public sector being financed through the government deficit. For the Tories to fixate on the taxes paid by workers in the private sector, and to then claim that this is funding the whole public sector, is to pretend the bigger picture doesn’t exist.

Both public and private sector workers have seen real terms cuts in their pay over the last decade. Tory-led governments have imposed successive pay ‘freezes’ on the public sector, but these have actually damaged those services over time. We entered the pandemic with a shortage of 40,000 nurses—the NHS was unable to recruit and retain nursing staff because pay was so poor. Similarly for senior teaching staff. As we’ve learned over that decade, attempts to supposedly save money through austerity have just created bigger costs and problems down the line.

Higher Pay

The rhetoric from Boris Johnson and his government now is that they want Britain to be a ‘high wage’ economy. We all do. But step number one in creating a high wage economy is to pay people more.

The government can take a lead on this by pushing up wages in the public sector, and so helping to drag up wages in the rest of the economy. It’s the same point as before: the public sector and the private sector are not too separate spheres. If public sector wages are rising, it creates an incentive for private sector workers to either leave and work in the public sector, or to demand higher wages themselves—the labour market turns in their favour.

And it’s not like there isn’t the money to spare for this. Corporations in Britain are sitting on over £800 billion in their bank accounts, up from £440 billion a decade ago. This is money that has been hoarded from profits over those ten years. Profits themselves, after taking a knock during 2020, have rebounded even faster than the rest of the economy and are now at record levels. Those profits need to be taken out of the hands of the hoarders, and put into workers’ profits—either directly, through private sector pay rises, or indirectly, through higher taxes and higher public sector wages.

Rishi Sunak, naturally, isn’t going to do that. But with promising signs that workers across the economy are demanding and winning inflation-busting pay rises, like the 17.5% pay award just won by lorry drivers in Liverpool, the fight is going to be on over the coming months. It’s essential that the whole labour movement now rise to the challenge: not just making demands of this Tory government, calling their bluff on their new-found support for ‘high pay’. But throwing our resources and our efforts into organising and recruiting to unions in every part of the economy for the pay battles to come.