Officers from the Young Fabians Economy and Finance Network delve into the Autumn Statement and propose what Labour's response should be.
The Autumn Budget is often perceived as the lesser of the two Budgets vis-à-vis the main Budget in March. However, there is a different sentiment this time around, especially as the country is charting a new way forward post-lockdown and ending support schemes such as the Coronavirus Job Retention Scheme.
The BBC has prepared an excellent article summarising the key announcements in the Autumn Budget1 with the main ones being:
- A rise in hourly National Living Wage (NLW) to £9.50
- Universal Credit (UC) tapering being reduced from 63% to 55% on/after 1 December 2021
- 50% business rates discount up to £110,000
- Increases in tax on stronger wines and ciders but none on spirits, wine, cider and beer
- Lower Air Passenger Duty for UK flights but increase for long-haul flights
- £24bn funding for housing including £11.5bn for 180,000 affordable houses
- 4% tax on property developers with profits higher than £25m to replace cladding
- Funding on schools to reach 2010 levels in real terms
- £7bn funding for transport infrastructure in Greater Manchester, West Midlands and South Yorkshire and £1.7bn Levelling Up Funds
The Economy & Finance Network Budget Response
This is a bizarre Budget. Although there are many things to welcome, budgets are all about trade-offs, and prioritising the reduction in the cost of champagne instead of putting more money into things such as education recovery shows the Government’s priorities are warped.
The Tories clearly have the next General Election and theatrics in mind by increasing taxes now before cutting taxes closer to the election (in line with what the Chancellor said about his intent on lowering taxes for people)2 and increasing them again after to trick the electorate – the EY Item Club counted 26 new tax measures and 23 spending measures. The Institute of Fiscal Studies Director Paul Johnson even predicted that the Chancellor will be able to provide approximately £7bn of pre-election handouts although the tax burden is expected to be higher within the next ten years3.
The Tories have become the party of high tax because they are the party of low growth, as Rachel Reeves indicated4. Tax as a share of GDP will be at its highest since the 1950s & the UK will see the weakest decade of growth since the 1930s. It is very noteworthy that the Tories have turned their back on Middle Incomes. The middle-income earner is likely to be worse off as a result of high tax, inflation and little wage growth. Middle incomes will get around a 2% hit (c.£3k a year more in tax)5. Kevin Peachey from the BBC added that pensioners and the unemployed also do not benefit from the Budget while the low-paid and in work will benefit6.
But what is there to celebrate?
The Tories have turned their back on austerity. Austerity doesn’t work, it has been shown the red card, and the ending of it is a win, not just for Keynesian economists or for Labour, but for the whole country. However, the damage to the economic potential caused by underspending increases over time. The increases in the Autumn Update have been inadequate, in particular with the U-turn over the HS2 Leeds branch and the absence of public spending to enhance productivity.
Increases in National Living Wage are welcome, but it could have been stretched to at least £10 an hour for those aged 23+. It is worth noting that the increase amounted to 6.6% although it was only 4.1% for 16 to 20-year-olds. Business concerns over the higher NLW could have been offset by business rate reform. The Budget prioritised Amazon at the expense of the High Street with the non-imposition of online sales tax. In fact, Amazon even received a tax break in the Spring Budget via the super deduction to use 130% of investment expenses on plant and machinery to reduce taxable profit for two years7.
£300m on "Start for Life" parenting programmes are good, but why did the Tories cut hundreds of Sure Start centres since 2010 to begin with?8
The Universal Credit Taper rate cut worth c.£2bn sounds great. However, it does not offset removing the £20 a week allowance which is worth c.£6bn. Average recipients will lose c.£800 a year while 3.2 out of 4.4 million households on UC (c.75%) will be worse off.
So what went wrong?
Covid continues to mask the Brexit fallout so it was bizarre for the Chancellor to say “all this is possible because of Brexit” – at the same time as the Chairman of the Office of Budget Responsibility says Brexit makes us 4% worse off in the long run. And that’s not all...
Education, education, education. Education massively lost out relative to other departments. Education spending is arguably the best long-term economic policy, yet the future is not being allowed to recover, let alone grow. The £2bn on education recovery falls way short of the £15bn that former education Tsar Sir Kevin Collins recommended (no wonder he resigned)9. The attainment gap for disadvantaged groups has increased, and education spending will still only be at 2010 levels. The expenditure per pupil in further education and sixth form colleges is still lower than 2010, incongruent with the Government’s Levelling Up agenda. Justice & Local Government also lost out, with spending still not returning to pre-austerity levels.
The Climate Crisis was mentioned 0 times, yet wine was mentioned 12 times. It is bizarre to reduce duties on champagne and call it a healthy budget, and bizarre to drop the UK air passenger duty, in the run-up to COP, and call it a green budget. According to some etymologists, Glasgow has Celtic routes meaning green hallow, so with COP26 it should have been the Green Budget – yet the can was kicked down the road in the transition to the green economy, with little to nothing on green financing, green R&D and technology, green housing, subsidies and other incentives for green heating, road taxation (to compensate for future falling fuel duty revenues), green transport, greener electricity or the potential of a beef tax.
As the Young Fabians, it is our duty to note that there was nothing on rectifying inter-generational inequality. Graduates earning more than £27k will now pay a marginal rate of over 42% and over 52% for grads earning over £50k10. The middle income is getting squeezed. The Health & Social Care levy is poorly targeted and will harm the young relative to the old. According to Chris Giles from the Financial Times, graduates face a 50% tax rate on additional pay from next April11. There were no announcements on changes to Capital Gains or Inheritance tax, yet banks still got a tax cut. There was nothing for the Generation Rent either. And the average Londoner, where many young people live, and an area which has been disproportionately affected by the pandemic, will have c.40% of their income spent on private renting.
It’s all just not good enough.
What should Labour’s response be?
Labour should firstly call out the Conservatives for political posturing by announcing the Health & Social Care Levy on 7 September, more than a full month ahead of the Autumn Budget, in the hope that the public will forget about the tax rise.
Moreover, Labour should present an alternative plan to the country on the number one issue on the public’s mind: the cost-of-living crisis. What can Labour propose?
Rachel Reeves’ response to the Budget provides indications for Labour to hammer home the point on fair taxation. She provided the examples of implementing an online sales tax and increasing taxes on stocks, shares and property incomes. Moreover, Labour can work towards reducing the difference in the tax burdens of waged earners and the self-employed by moving the two tax rates closer. Doing so will contribute to reducing the over-reliance on income tax and National Insurance which constitute 43% of tax revenue in FY2112.
In relation to spending, Labour can drive home the point that the Tories have wasted public money. Examples include spending £37bn on the Test and Trace system which is hardly used13 and £3.5bn of government contracts for Tory supporters including Personal Protective Equipment supplies14. Instead, Labour will ensure the public money will go towards addressing the cost-of-living issue by cutting VAT for gas and electricity amongst others.
There is no better time for Labour to present an alternative vision of the future as the UK emerges from the COVID-19 pandemic. The question is, therefore: Can Labour rise to the challenge?
This post was co-authored by Chris Wongsosaputro and Amarvir Singh-Bal, Co-Chairs of the Young Fabian Economy and Finance Network (YF E&F Network), Dominic Shaw, Vice-Chair and Finance Lead of the YF E&F Network and Nick Trickett, Energy and International Economist of the YF E&F Network.