After a protracted period of nervous anticipation, the delayed autumn budget was finally announced yesterday, and its contents were not a surprise to many. Commentary surrounding the budget over the past few weeks has been filled with scare-mongering over the so-called ‘fiscal black hole’—with many expecting or even advocating for “big, painful cuts” to public spending in order to restore government finances. . Sadly, reckless calls for renewed austerity have won-out and common sense regarding the deleterious impact of fiscally contractionary policies during recessions have been ignored. The UK has already experienced a 2.5 percent contraction in GDP and this budget will add fuel to the recessionary fire with spending cuts of £30 billion and tax hikes of £25 billion in attempt to ‘reassure’ markets.

Much of the fear surrounding the budget deficit, ranging anywhere between £30 billion to £60 billion (depending on the day of the week you checked), was predicated on the government’s own target level for debt, as well as constantly shifting forecasts for growth and tax revenue by the OBR, which are highly uncertain.

Furthermore, fiscal rules adopted by the government are constantly changing (and are regularly broken), with research published by the Progressive Economy Forum showing that changing the ‘debt target’ back to the level set in January this year would completely negate the ‘black hole’ and in fact leave £14 billion to spend.

While this is a watered down version of the Austerity 2.0 budget many feared, hysterical accusations of ‘soviet style public services’ funded by taxation are overstated. Of the many avenues available to the Chancellor to raise revenue, he has chosen to place the burden firmly on the shoulders of workers rather than the wealthy.

The freeze on income tax thresholds and the tax-free allowance, which are supposed to increase in line with inflation, has been extended from 2026 to 2028. This ‘Stealth Tax’, estimated to bring in an additional £22bn by 2027-28, will push millions into higher tax bands than they otherwise would. Moreover, it will eat away at the modest wage increases already failing to keep up with rising energy and food prices, now at a 40-year high and up  over 16 percent from last year. 

Rising taxes on ordinary households come as the number of Brits on poverty pay hits a new record of 5.1 million. Hunt has tried to present his tax policies as ‘fair’ by taking more tax from higher income earners through lowering the threshold of the 45p rate from £150k to £125k per year. However, he has not increased the rate of tax on passive or unearned income, such as dividends or capital gains, which are both taxed at a lower rate than income from work. The wealthiest, with incomes over £1million annually, get around one-third of their income from dividends. Instead, Hunt has cut just the allowances for dividends from £2000 to £1000 and capital gains from £12,300 to £6000. 

Cuts to dividends and capital gains allowances will have a negligible impact on the revenue raised through taxation of the passive incomes of the super-rich, with estimates ranging from around £1.5 billion in 2024/25 and rising to £2.2bn in 2027/28. Research from the TUC has shown that shareholder pay-outs have grown by £440 billion above inflation since 2008, while wages have fallen £510 billion short of inflation during the same period. The disparity between rising dividends and falling wages is not a coincidence: higher profitability for firms is derived from squeezing more out of workers with below-inflation pay rises, which ultimately ends up in the pockets of shareholders.

If the government was serious about taxing wealth instead of wages, there are a number of alternative policies available to it. According to economist and tax researcher at Warwick University,  Arun Advani, charging National Insurance Contributions on investment income would raise around £10 billion annually. Advani also points out that raising the rate of capital gains tax in line with income tax (similar to the structure under former Tory Chancellor Nigel Lawson) would raise an additional £16 billion a year (try his online tax reform-app out for yourself). Supporting this, research from the IPPR has estimated that a tax on share buy-backs could raise up to £17 billion per year, and Tax Justice UK estimate that a 1 percent tax on wealth over £10 million would raise another £10 billion a year.  

But the Tory government is not taking a progressive approach to taxation—so what will the British public have to show for the highest tax as a percentage of GDP since the end of WWII? In his speech, Hunt boasted about his increase to the NHS budget, pledging an extra £3.3 billion for each of the next two years. Despite huge amounts of NHS spending throughout the pandemic, waiting times are up, and treatments started per year continue to fall. As the billions lost to fraudulent PPE contracts during the pandemic highlighted, it is not enough to just allocate a budget; how that money is spent matters. A huge amount of NHS money is wasted on PFI repayments and outsourcing NHS contracts to the private sector. Research from the IPPR has shown that the NHS will have to repay £80 billion for just £13 billion of initial investment from PFI schemes by the end of their term. Similarly, the BMA has criticised record amounts of taxpayer’s money being diverted out of the NHS—with spending on the ‘independent sector’ increasing from £8.76 million to £9.18 billion between 2018-2019. 

It is hard to see how the government’s budget will deliver on its promise of growth. Wages are stagnant and the Bank of England is forecasting unemployment to almost double to 2.2 million by 2025, as is their intention. The Bank of England wants to increase unemployment in order to keep wages down and offset inflation caused by supply shortages in an effort to protect financial profits, while another gloomy forecast from the OBR shows a drastic revision in business investment. Hunt said public spending will continue to grow but ‘more slowly than the growth of the economy.’ This line from Hunt sounds eerily reminiscent of the neoliberal economist and advisor to President Ronald Reagan, Milton Friedman. 

Friedman said the way to cut government spending was to ‘hold down the rate of growth of government spending in dollars and to cut it in terms of purchasing power.’ In other words, Friedman said the way to shrink government is not immediate spending cuts but gradually rolling back spending over a number of years.  Hunt has promised to introduce ‘consolidation’ once growth returns in order to get government debt falling—conveniently forecast for after the next general election. So don’t be fooled, this is not a progressive budget, it is the bare minimum needed to keep capitalism on life support. Austerity has not been cancelled–it is just being drawn out.