24th September 2022
Chancellor Kwasi Kwarteng – budgeting for the rich
Casino economics has been a key feature of capitalism since the late twentieth century. The idea that rewarding the rich would result in the ‘trickle down’ of wealth to the poor was a theory beloved of US President, Ronald Reagan, and British Prime Minister, Margaret Thatcher, in the 1980’s. It is stating the obvious to point out that poverty in the US and Britain has not been alleviated as a consequence and that while the poor continue to grow in number, so too do the numbers and wealth of billionaires.
The logical outcome of this economic model was the 2008 financial crash, which precipitated over a decade of austerity and the working class being forced to pay for the bankers gambling debts. In spite of this, the trickle down theorists suggest that liberating constraints on business and the wealthy will generate economic growth and job creation, in which we will all be able to share. The creation of jobs is a worthy objective, with which no one can argue, but those in the gig economy, on zero hours contracts or working at rates below the living wage may feel that not enough of that wealth has trickled in their direction.
The best guarantee of sustaining jobs with decent rates of pay is through trade union organisation at the workplace, yet the trickle down theorists do not seem to agree. While casino economics and deregulation are seen to be good for the bankers and corporations in the City of London, for example, this inevitably goes hand in hand with tighter regulation and constraint upon trade union activity, in an attempt to subvert workers accessing more of that trickling down wealth.
Prime Minister, Liz Truss, and her new Chancellor, Kwasi Kwarteng, are card carrying casino economists of the worst type, determined to enrich the wealthy and keep the poor in their place. The so-called mini-budget unveiled on Friday aims to do just that.
Even just calling it a mini-budget is a sleight of hand. An actual budget has to be scrutinised by the Office for Budget Responsibility and some assessment, independent of the government, made of its impact. The ‘fiscal event’, as the mini-budget has been described, does not require even this level of scrutiny. If Truss and Kwarteng were hoping to gain anything by this the plan has backfired as budget analysis fills the print media and the airwaves.
There are many headlines associated with the budget. The 45% tax rate for those earning over £150,000 a year is to be abolished. Income tax rates for all (who earn enough to pay them) will be cut from 20% to 19% from April 2023. The cap on bankers’ bonuses will be scrapped. Corporation tax will remain at 19% rather than increasing to 25% as previously planned. The 1.25% increase in National Insurance, introduced to help fund social care, will be cancelled from 6th November. More stringent regulation on when trade unions can call out members on strike will be introduced.
The net effect of these measures, according to the Resolution Foundation think tank, is that the lowest income households will save £22.12 per year, while the richest households will benefit by an extra £9,187 a year. For anyone earning over £1m the effect of the combined measures will be to net them an extra £55,220 per year. Perhaps they will use some of that wealth to help pay the energy bills of those gaining little more than twenty quid? Perhaps not.
The trickle down theorists assert that companies paying less in corporation tax will use that money to invest in growing their business. Evidence suggest that it is likely to result in bigger dividends for shareholders, further increasing the wealth of those at the top.
Speaking about the creation of 40 investment zones, with tax breaks for businesses and ‘relaxed’ planning regulations, Kwasi Kwarteng asserted,
“If we really want to level up, we have to unleash the power of the private sector.”
Of course, Kwarteng and his cohorts have no desire at all to ‘level up’ and the unleashed ‘power of the private sector’ led to the 2008 financial crash. Investment zones in whatever guise have no great track record of success in terms of sustained job creation and have often led to local infrastructure crises as they are outside of the control of local planning authorities.
Casino economists like Truss and Kwarteng fail to recognise that the real engine of economic growth is public sector investment. Modernising schools, hospitals, making homes more energy efficient, expanding the digital infrastructure, building council houses, expanding the electric vehicle charging network, would all create jobs and boost growth. Going further, the nationalisation of key sectors such as energy, mail and transport would give more control over capital investment and bring consumer benefits.
Even these steps are possible within the constraints of a capitalist economic model and, with the right political leadership, could be the first steps on the road towards a fully fledged socialist economy. They are the very least the Labour Party should be arguing for in response to the mini-budget and in the lead up to the next General Election. Opposition to the mini-budget and the new government should not be confined to a trickle, it should be a deluge.
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