With the constant drip of stories about possible tax hikes or reinterpretations of the fiscal rules, it’s easy to forget the underlying purpose of any budget. There are two fundamental but straightforward questions to guide a chancellor’s thinking. The first is what society do you want to create? The second is what are the economic measures that will aid its creation?
Labour’s historic mission has been to ensure a good standard of living through decent wages, access to health services and education not dependent on what you could pay, and housing you could afford. But above all else Labour pledged to build a society where poverty would no longer exist by creating a safety net to ensure the most vulnerable, children and unemployed, sick, elderly or disabled people, were no longer at risk.
To achieve all this, the postwar Labour government introduced the most progressive, civilising innovation in our country’s history, the welfare state, funded by a redistributive system of taxation. Any budget under a Labour government since then should be measured on its contribution to achieving this mission.
Undoubtedly, the 14 years of austerity under the Conservatives presents the incoming government with a huge but not insuperable challenge. Fourteen million people, including 4 million children, now live in poverty. Wages have stagnated since the banking crash, while low-paid insecure employment has spread like an epidemic. Year after year of underfunding has pushed our public services into crisis.
Nevertheless, we are an immensely wealthy country, the sixth-largest economy in the world. The debt-to-GDP ratio is now just under 100%, but Clement Attlee carried a 250% debt to GDP and still constructed the welfare state. In fact, 100% is about average historically.
The question that this government must go some way to answering is how we harness the economic resources and capacity to rebuild our country and the welfare state. Despite all the pre-budget handwringing drama, the solutions are readily available. The reinterpretation of the fiscal rule on debt, as first proposed in Labour’s manifesto in 2019, will open up the opportunity for large-scale public infrastructure investment with sufficient guardrails at hand to reassure the bond markets.
There is also a wide-ranging vista of tax reforms based upon the principle of the broadest shoulders bearing the heaviest burden that cumulatively would provide the resources to fill budget gaps and enable the rebuilding of our public services. This is even before the inevitable debate about how wealth and land are taxed fairly. If fully developed, the government’s employment rights bill also has the potential of raising wage levels by restoring the balance of power at work.
This budget therefore has the potential of being the much needed, radical break from the dark years of austerity. However, it will be totally undermined if the government goes anywhere near policies that maintain the Conservatives’ assault on the poorest in our society.
It has been reported that the chancellor, Rachel Reeves, aims to press ahead with plans to cut the welfare benefits budget by up to £3bn, in part by adhering to the previous government’s plans to make the work capability assessment (WCA) harder for disabled people to qualify for support, or to introduce its own reforms to the WCA but with the same savings target.
According to the Resolution Foundation, 450,000 people whose health prevents them from working would lose £4,900 a year. Nearly half of families that receive incapacity benefits come from the poorest 30% of households. Scope, the disability charity, has warned that thousands of disabled people are “feeling anxious and confused”. A group of anti-poverty, health and disability charities, including Z2K, Child Poverty Action, Mind and the Joseph Roundtree Foundation, called on Liz Kendall, the work and pensions secretary, to scrap the plans.
According to activists, there have been contradictory briefings that the WCA changes both would and would not be part of the Department for Work and Pensions’ savings package. A judicial review is also currently scheduled to be heard on 11 December.
With a record 2.8 million people out of work through ill health, the argument has resurfaced that benefits cuts will incentivise sick and disabled people to move into employment, but the Office for Budget Responsibility found only about 3% (15,400) of the affected claimants would move into work, with the rest suffering heavy financial penalties.
It is no coincidence that the graphs showing the increase in people unable to work and the growth in the NHS waiting list for treatment almost coincide. Disability benefits cuts will not solve the problem of labour shortages. They will increase disability poverty rates and lead to greater pressures on the NHS, social-care services and the mental-health system, placing additional long-term costs on our society.
If the government has learned anything from the angry reaction to the cuts to the winter fuel allowance that so blemished its early days in power, it must be not to spoil the potential of a good budget by acting against the very principles of the welfare state that Labour was so proud to found.
John McDonnell has been the MP for Hayes and Harlington since 1997. He was shadow chancellor from 2015 to 2020
