Budget fails to address real wealth inequalities

Prem Sikka says the second Labour budget has more negatives than positives and looks like managing decline rather than renewal

The most positive thing about the budget was the scrapping of the two-child benefit cap. That is, after the government subjected thousands of children to poverty needlessly for 18 months. There was absolutely no need for that. The writing was on the wall; it had to be scraped. Its removal is also a tribute to campaigners, the people who organised protests and briefings. Some of us had our ears bent by the whips for opposing the winter fuel payment and disability benefit cuts. For this, I wonder now whether they will acknowledge that they were wrong. I very much doubt it, but it was a shameful episode in the history of the party. Nevertheless, the positive thing is that if you fight, keep on fighting, you get some
change out of the government. So, with that, I would encourage everyone to continue to fight.

That’s the positive news in the budget.

By and large, the rest isn’t really so positive. We have 1% of the population, roughly 685,000 people, who have more wealth than 70% of the population combined. Their estimated wealth is about £2.8 trillion. I don’t think they would be worried about anything that’s happened in the budget. They are basically unscathed. That, in a sense, shows you the power of corporations and the ultra-rich. Some political parties will invent consultancies for legislators. I’ve lost count of the number of times I’ve been offered a non-executive directorship by companies. Companies are even saying, You don’t have to do anything. But we’ll give you the money: all you have to do is ask questions on our behalf and open up possibilities of parliamentary intervention.  

So what exactly is ailing Britain? That is the issue that the budget fails to address. For the last 20 to 30 years, we have followed the wrong model of economic growth. This model has been based on increasing inequalities, increasing poverty, reducing workers’ rights, and consumers’ rights. Remember, all the regulators now have a duty to promote the growth of the industries, which inevitably dilutes the duty to consumers and means regressive taxation and a concentration of wealth. If people don’t have enough money, then they’re not going to buy goods and services. It’s as simple as that. You can’t stimulate the economy by eroding the purchasing power of the bottom 50%. That is exactly what this budget does by freezing the income tax thresholds.

The origins of this really go back to the late 70s and early 1980s with a right-wing coup, which is still going on in this country and in which Keir Starmer and Rachel Reeves are participating. Part of that coup was to erode workers’ rights, discipline people by poverty and benefit cuts, and restructure the state.  The state has been transformed and has become a guarantor of corporate profits. Good examples are privatisations and the outsourcing of public services.

We have seen with PFI that basically investment of one pound from the private sector gives it back six pounds. That is continuing. The government know that is happening in the NHS, which is essentially becoming a shell doling out contracts to the private sector with a profit margin of anywhere between 32% and 43% which means public money buys less. You won’t see much of an erosion in the NHS queues for that reason. The budget doesn’t address any of that. If anything, the Chancellor promised more private sector involvement in various things. If you examine the government’s 10-year NHS plan, it is largely about privatisation.

The state will continue to guarantee profits. Why? It can invest directly, but there is a kind of taboo created that if the state invests directly, it is bad.  If it does it through the private sector, that is somehow good. I don’t particularly buy that. So we have now got a rentier economy. Companies sweat assets. Look at the water industry. What investment has it actually made? But its profits are guaranteed. Look at the energy sector. Profits guaranteed. When you get heavy winds, the wind turbines have to be turned off because our electricity transmission system is not up to it. We are paying people £180,000 an hour to turn off the wind turbines. It’s likely we are spending £8 billion a year just paying companies to turn off the turbines. So when that happens, you have a gap in the electricity grid. That gap has to be met. That gap is then met by turning on the multiple gas stations, which produce electricity, which is even more expensive.

We have so many industries which can basically just sweat assets and get returns. Those returns are guaranteed by the formulas that are used by Off-Com, Off-gen, and Off-watt. For example, water companies are guaranteed real profits every year after taking account of inflation. That’s how the formula works. There is no reform of that in any way whatsoever.

So the budget doesn’t really touch any of that. Banks have been getting massive subsidies ever since the 2008 crash. It is called the interest payment on central reserves. About £23 billion a year is paid to banks by the government, which is the residue of quantitative easing. Basically, there’s an asset purchase facility: the government’s buying assets, the money goes to the banks. Then somebody says, Oh my God, you’ve got too much money, give some of it back to us, we’ll give you interest on it. All while the state is paying out $23 billion.

The European Union stopped that in 2023. We are still paying it, and the banks are laughing all the way to the bank. We have crazy policies. If we want to manage inflation, the model in this country is first, you de-industrialise. Then you import cheap goods from China, which keeps the rate of inflation low. Then you cut public sector and other workers’ wages and pensions, and other rights. That keeps inflation low. Then we tell people, by the way, hand over most of your wealth to banks. That will really cure inflation. But bankers are saying, thank you very much. We’ll have bigger profits, bigger dividends, and bigger executive pay.

We call this economic management. Take the water industry: 90% of these industries are from abroad, which means 90% of the dividends which we pay go abroad: no taxes are levied on those dividends whatsoever. We have a massive leakage all across the sector. None of these things is actually addressed by the government. Furthermore, we have low productivity, despite people working long hours, because we have low investment. We’re investing about 18.2 % of our GDP at the moment into productive assets. The OECD average is 23%. Germany is about 26%, France, 23% China, where it has declined, is 40.4%. India is over 30%. We are not even in the race.

The Budget had nothing about tackling the City, which is riddled with short-termism. There is no change in corporate governance. A few years ago, I was brought in to investigate the collapse of BHS and Carillion by the Work and Pensions Committee. What those companies were doing, almost every company is doing. There is no change in corporate governance. We don’t have worker-elected directors on boards to say, let’s talk about how the cake is to be divided. Workers have a longer-term interest in the well-being of the companies than shareholders. A typical share is held for 22 seconds. When companies say it is a matter for shareholders, shareholders walk in, people buy shares just before there is a likelihood of a takeover, and then they’re out. That same afternoon. Is that a way to operate?

1.17 million jobs are on zero-hour contracts, which are not going to be abolished, contrary to what Labour told us before the election. 24 million people in this country live below socially acceptable living standards. 34% of claimants of Universal Credit are actually in work. Work doesn’t pay, and the Employment Rights Bill isn’t going to end insecurity. The government is now rolling back part of it. One of the ministers said that’s a pragmatic thing to do. Why is it that it’s always a pragmatic thing to do if something is against workers? Why is it not pragmatic to nationalise water or energy? But that is somehow off the agenda.

Before the budget, I produced a 45-page handout for backbench MPs alone. As well as explaining to them what was wrong, I explained what exactly needed to be done. And this budget doesn’t really do it. There were some very, very straightforward choices. First, stop the £23 billion a year subsidy to the banks. Banks don’t need to be subsidised. We could have aligned capital gains taxation with wages, equalling £14 billion. We didn’t do that. We could have aligned the rate of payment on dividends with the rate of tax. We could have aligned it with wages. That’s billions more.
We didn’t actually do that either. We don’t attack corporate tax and the use of profit shifting. Governments say they will tackle tax avoidance, but I don’t see any real means to do it.

In the Labour 2017 and 2019 manifestos, we said we would force all large companies and indeed rich people to publish their tax returns. Let us see how exactly they’re shifting profits. Let us see what the difference is between the profits they published and the ones on which they are actually paying tax. The government dropped that.

Keir Starmer said he would follow the 2019 manifesto, but he didn’t. So we have a problem. We are paying billions of pounds in dividends to foreign investors holding companies in offshore tax havens. We don’t deduct any tax from that source. That is a huge amount of money leaked. There were some proposals from the left, not just my paper. But they weren’t shared with the backbench MPs and Lords. It was also sent to Rachel Reeves. They don’t want to hear from the back benches. We’re just a nuisance.

So what do we need to do? If we want to revive the economy, we must redistribute income and wealth. Poor people can’t work properly. People living in bad housing make demands on the public services, on national health care, which already has huge queues. Poor people need other support services. So, lift people out of poverty. Have equitable distribution of income and wealth. You can do it through taxation. You can do it
through the democratisation of work. People talk about a universal basic income. What about universal basic services? Should people be paying for bus fares when travelling locally? No. Should anybody have to pay for child care? No. So let us also not just talk about universal basic income, but also about universal basic services, which will help women too.

So, other than the abolition of the two-child benefit cap, the budget is really disappointing. Currently, all that Labour, led by Keir Starmer and Rachel Reeves, are really aspiring to is managing decline.