Link to this page: https://www.socialistparty.org.uk/issue/197/8136
GORDON BROWN'S budget was framed to guarantee a New Labour victory without scaring the big business horses says KEVIN PARSLOW.
After the drought, a few drops of rain
"THIS WAS not a budget to win an election, but a budget for an election that is already won. Its handouts were slight, its promises distant, its perspectives closer to five years than five weeks", said Guardian political commentator Hugo Young.
This budget, despite the fanfares, did little for ordinary people and was designed to totally satisfy New Labour's big business friends.
The chancellor has given away only £4 billion in 'goodies', the largest portion going to drivers to prevent further fuel protests like those last September which rocked the government.
There's an extra £1 billion promised to health and education, but spread over three years! There is a small change to the 10% tax rate, which will slightly benefit all workers, but business gets goodies such as the reduction to long-term capital gains tax and VAT.
Polluters of industrial land and landlords of run-down properties get grants to 'help' inner cities, thus rewarding their neglect of the environment.
The supposed winners in this budget were children and families. This year 'prudence' got just two mentions, well behind 'stability's 13 but both were left standing by the 93 mentions in the budget speech of 'children' or 'family'.
The payment of £10 per week tax credit for children, the rise of working families' tax credit by £5 per week, the rises and eventual extension of maternity pay and the introduction of paternity leave and pay were all trumpeted.
Meanwhile, pensioners receive their expected rise of £5 per week for a single person or £8 for a married couple.
But Brown could and should have done so much more. From the Treasury's huge surplus he chose to repay £34 billion of the national debt.
Compare this to even some relatively small sums which Brown refused to grant: more than 600,000 extra children could have been lifted out of income poverty had the £2.4 billion spent on cutting the basic rate of income tax from April last year been used to increase benefits for the poorest children [CPAG audit of deprivation].
And immediately following the budget, it was reported that, last year, five million people were living in conditions of absolute poverty in Britain, including pensioners and others lacking the absolute necessities to maintain decent living standards.
THIS HAS been the most pro-business Labour government ever. The Financial Times commented: "An economist from Mars examining the public finances under Tony Blair's Labour government might conclude that it came to power early in 1999. His first glance at the figures would suggest that in 1997 and 1998 Britain's public finances were being managed by someone who out-Thatchered Margaret Thatcher for restraint."
Even the government's media friends admit the truth: "This has been a deeply conservative government, dogmatically attached to private finance and privatisation". [Polly Toynbee and David Walker, The Guardian]
New Labour came to power in 1997 because of a vast anti-Tory mood, capitalising upon general distrust of Tory economic policies following Black Wednesday's financial disaster.
Huge expectations were raised which had no chance of being met as New Labour committed itself to the Tories' budget policies for the first two years of its government.
The City of London and big business were reassured nothing would fundamentally change. In fact, it was New Labour that had changed, with its acceptance of the free market and its commitment to work with big business.
So the institutional investments such as pension funds, with £1.5 trillion tied up in them, were offered bribes in the form of tax relief and credits for them to invest in research and development.
WHILE THIS government has been good for big business, Brown has been 'lucky'; to have presided over an economy without major or protracted crises; whilst the world economy has sailed along, thanks to the engine of the boom in the US economy.
But New Labour's hope was that they could eliminate the business cycle of booms and slumps. The 'new economy' of technology, computerisation, science and telecommunications, linked to Gordon Brown's prudence, would iron all the problems out.
Unfortunately, the gurus of the 'new paradigm', particularly in the USA, are eating their words. Yahoo's! collapse in profits shows that new technology companies are just as vulnerable to economic downturn as the 'old economy' of manufacturing.
New Labour's second hope, therefore, is that if US recession is on the way, then maybe Europe, and particularly Britain, can avoid it. But the CBI has already noticed the problems of the world economy hitting Britain, through a downturn in orders for exporters.
Mervyn King, Bank of England deputy governor, has warned "no country is an island" and remarked that consumer and business confidence in the US had dropped much more quickly than expected.
The British economy's weaknesses are being exposed. Britain, the former 'workshop of the world', had a trade deficit last year of £29 billion, the largest shortfall between exports and imports since records began.
The bulk of this is not with the EU, despite the pound's high strength compared to the euro and the majority of British exports going to Europe; £27 billion of this deficit is with countries outside the EU.
If the economies of North America, Japan and the Far East slow down or remain in recession, this will reduce demand for British exports, causing redundancies and factory closures. Some capitalists thinks this doesn't matter because it can sell its financial services and repatriate its profits.
Investment firm Smithers & Co believes that the British economy operates like a super global hedge fund, exploiting its superior knowledge of financial markets to make risky but rewarding bets on international share prices. However, these will also be subject to a global downturn.
If, against the odds, the world economy continues growing, then the trade deficit will rise and stay high, needing continuous high funding, and interest rates high enough to attract investors.
But British industry needs interest rates cuts for its own domestic needs. If it doesn't get them, there will be a different route to unemployment, but it will be the same effect for the hundreds of thousands thrown on the dole, adding to the 300,000 manufacturing jobs already lost under New Labour.
Martin Temple, Engineering Employers' Federation director general, has warned that the level of investment fell by almost 15% in 1999, and is forecast to have grown by only 2%-3% last year. UK spending on research and development had slipped from equal first among industrialised nations in 1981 to sixth in 1999.
Additionally, the economy relies heavily on foreign investment; it receives 39% of the total received by the EU. In a world downturn, inward investment will undoubtedly recede.
BROWN MENTIONED none of this in his budget but the government's policies could be wrecked by a downturn. The Financial Times pointed out the dangers: "If the economy slowed down, the public finances might deteriorate rapidly - as happened a decade ago. The swing then from surplus to deficit [of the government's finances] was 10% of national income over five years. A similar deterioration now would represent a swing of £100 billion."
A downturn means a huge fall in tax revenues and a rise in the payment of benefits. In the Budget are the continuation of policies that will become more ruthless as a slowdown develops, such as the measures of compulsion for single parents and over-25s.
Big business, however, is currently making huge profits; three big oil companies, BP, Shell and Esso, made combined profits of $45 billion last year. Yet there was no mention in the budget of increased taxation, let alone nationalisation of such companies. Energy minister Peter Hain said oil companies were safe from a windfall tax on record profits as long as they continue to invest in the North Sea.
The more far-sighted ruling class commentators can see bad times coming. John Grieve Smith, Fellow of Robinson College, Cambridge, wrote in The Independent on 7 March: "It now seems clear that [Brown] has in fact embraced the neo-liberal or Thatcherite consensus, a lot more enthusiastically than his empirical Tory predecessor, Ken Clarke... [Brown] has played a key part in consolidating the Thatcherite revolution over a wide range of domestic policies... future historians will see Gordon Brown as the key figure in bringing New Labour to accept the neo-liberal revolution in economic policy associated with Mrs Thatcher... A return to the economic philosophy of the interwar period, which is what the neo-liberal consensus really amounts to, provides no answers to the problems of today's unstable global economy, any more than it did in the 1920s and 1930s."
Recession or socialism?
PRO-CAPITALIST policies cannot prevent a recession nor will they protect workers during one. What is necessary are policies and a party to defend working-class people from capitalism's ravages and attack the real causes of our problems: the capitalist system.
Only a democratic socialist economic plan which nationalises the major monopolies and industries, the banks and financial insititutions, can provide a decent standard of living for all and prevent the return of the catastrophic conditions that faced workers in the past.
Repaying the loan sharks
THE HUGE repayment of the national debt goes overwhelmingly into the coffers of the bankers and financial institutions, when public services such as health, education and transport are begging for huge investments.
Even then, a section of capitalism's spokespersons aren't happy. Brown will buy back Treasury gilts. These are government bonds, the payment of interest on which is virtually cast-iron guaranteed, so they are the backbone of pension funds.
But repayment of the debt and a budget surplus means that there are less gilts about, forcing the pension funds to buy more risky investments. So, repayment of the debt is no guarantee of stability for those people privately saving because the state pension is inadequate to meet their needs.
In The Socialist 16 March 2001: