Chancellor must use budget to abandon neoliberal policies

Chancellors come and go but the crisis has worsened because they have all become slaves to neoliberal dogmas

Prem Sikka is Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labor member of the House of Lords and editor of Left Foot Forward..

Next week the Labor government will present its first budget in 14 years. In a post-Brexit world, the country faces considerable challenges in reviving a stagnant economy, falling living standards and broken public services.

Despite being the world's sixth-largest economy, much of the population is burdened by poverty and a sense of helplessness. Adjustments to the tax base and rates must be used to reduce income and wealth inequalities and improve citizens' purchasing power, an essential condition for building a sustainable economy.

Chancellors come and go, but the crisis has worsened because they have all become slaves to neoliberal dogmas. People's living standards have been eroded by endless austerity and corporate profits have been guaranteed by privatizations, outsourcing of public services and private finance initiatives (PFI). Everything must change.

Energy sector profits are responsible for creating poverty and the death of the steel industry and shipping. Revenues extracted by water company shareholders are the cause of high prices, pollution of rivers and seas and low investment in infrastructure.

In the 1970s, the UK was lucky to win nature's lottery with its oil and gas deposits in the North Sea. The government squandered this break by handing it all over to private corporations and subjecting the industry to comparatively lower tax rates. The UK handed everything over to the private sector, collected $1.72 a barrel in taxes and squandered it on tax cuts for the rich. Norway has also discovered oil and gas deposits in the North Sea, but has not privatized. He collected $21.35 in taxes per barrel and reserved that revenue for future use. He now has a $1.4 trillion sovereign wealth fund while Britain's public finances are in disarray. The British state is still fond of privatization and, despite its failures, it will not make water public property.

Neoliberal dogma presents workers as the problem. With the state-sponsored attack on unions, workers' share of gross domestic product (GDP) in the form of wages and salaries decreased by 65.1% in just 1976 50% now. 12 million people, including 4.3 million childrenlive in poverty. 9.3 million peopleof which 3 million children face hunger and hardship. Annual before tax median salary of 28,764 is lower in real terms than in 2008 and does not give people access to good food, housing, healthcare and pensions. Last year, some 3.12 million people used food banks to survive. Some 17.8 million adults have an annual income of less than 12,570 euros. The average public pension, between 9,000 and 9,500 euros, constitutes a major source of income for retirees and represents less than 50% of the minimum wage. Last year, some 5,000 retirees froze to death as they struggled to afford to eat and heat themselves. Unsurprisingly, the UK is experiencing a labor shortage. 2.8 million people are chronically ill and unable to work and 6.33 million people are waiting 7.64 million hospital appointments just in England.

The tax system has been used to impoverish the poor. The richest quintile pays 31% of gross household income in direct taxes; the poorest fifth, 14%. The richest fifth pay 9% of their disposable income in indirect taxes; the poorest fifth, 28%. In total, the the poorest pay a higher proportion of their income in taxes.

Even access to higher education and skills does not necessarily offer a route out of poverty. Student debt has reached 240 billion and is expected to reach 500 billion by 2050. Not so long ago, this was part of the public debt, but successive governments have passed it on to households. Cash that once fueled spending in the local economy now increases profits in the financial sector. Not surprisingly, too many city centers resemble economic deserts.

Due to government policies, the summit 1% has more wealth than 70% of the combined population. The poorest 50% of the population own less than 5% of assetsand the richest 10% have 57%. The systematic creation of poverty means that fewer people have the capacity to spend and stimulate the economy.

Neoliberal policies have not stimulated investment in productive assets. The UK's investment performance is worse than all other G7 countries. Successive governments have offered tax breaks, grants and subsidies to stimulate investment, but why would businesses invest when people have no power to buy the resulting goods and services?

In this context, Chancellor Rachel Reeves must increase people's income, a necessary condition to guarantee economic growth and build a sustainable economy. She must raise the living wage and, at a minimum, impose a triple lock on all social security benefits. By removing the benefit cap for two children, the government can lift thousands of children out of poverty. By restoring payment for winter fuel for everyone; this can prevent thousands of retiree deaths.

Personal allowances have been frozen since 2021 and have pushed millions of poor people into the income tax bracket. The government must end the freeze. Each increase of 1,000 personal allowances costs around 10 billion. The advantage afforded to the rich can be clawed back through adjustments at the top of the scale. This can boost disposable income and local economies.

The Labor Rights Bill The bill currently before Parliament offers the opportunity to restore workers' rights and end precarious employment. The bill must be revised to end zero-hours contracts and the abhorrent practices of firing and rehiring workers on lower wages. It must give workers a say in company affairs by ensuring that worker-elected directors sit on the boards of all major companies. This can help ensure equitable distribution of income. Only strong unions can negotiate with warring employers to get a fair deal for workers.

Tax policy must be used to reduce inequality and redistribute wealth. Taxing capital gains and dividends at the same rate as wages is a necessary step. Capital gains and dividend recipients use the NHS and social services but pay no national insurance. This situation is unfair and must end, and could raise 25 billion or more per year for redistribution and/or investment in infrastructure.

Indeed, the government has vast political choices in terms of redistribution and reduction of inequalities. These include the wealth tax on the ultra-rich, the financial transactions tax, taxes on private planes and yachts. Since 2010, HMRC admits it failed to collect more than 500 billion in taxes while others say this is the case closer to around 1.4 trillion. This does not include taxes lost due to profit shifting by large corporations. Some 570 billion is stashed in tax havens by UK residents and HMRC has made no estimate of the resulting taxes. Overall, there is enormous potential to increase tax revenues to reduce inequality and poverty and rebuild the economy.

Rather than reviving the discredited Private Finance Initiative (PFI) under which the government paid businesses 6 for every 1 of investment, the government must invest directly in social infrastructure. The neoliberals always put forward the public debt argument whenever public investment is mentioned. They must be reminded that the construction of the United Kingdom after the war was facilitated by a public debt of 270% of GDP. This made it possible to build the welfare state, infrastructure, new industries, revive the private sector, stimulate employment and generate tax revenue. In 1976, the debt was reduced to 49% of GDP. Such policies are needed again. The current public debt is approximately 100% of GDPand includes the effects of quantitative easing. When you exclude it, that comes to about 65% of GDP. There is therefore room to borrow, and the Chancellor would consider easing the straitjacket of self-imposed debt.

Rises in water and energy prices have increased household poverty and business costs, and shown that governments obsessed with privatization have fewer economic levers to manage the crisis. It can acquire more by placing essential services in public ownership and thus eliminate profiteering and ensure economic stability. Neoliberals sing the praises of markets and competition, and would certainly welcome the breakup of banks and internet companies, as this can increase competition and drive down prices.

The Chancellor must abandon the neoliberal policies that have held the UK back for so long. They brought neither prosperity nor happiness to the people. Often, emancipatory change is imposed despite opposition and the same is true today. The government must prioritize the welfare of the people over the short-term selfish motives of corporate giants and the financial sector.