The Tory class war continues, with a discredited economic strategy, and austerity measures designed to foreclose the future, argues Dominic Alexander

It turns out that the fantasy economics of Liz Truss’s government were not ditched when it was replaced by Sunak and Hunt. Today’s Autumn Statement retreads much of the same strategy, only with even more dishonesty and concealment. Like Kwarteng’s, this economic plan rests on tax cuts, mostly for business, and a bonfire of regulation in the discredited belief that such measures will lead to a boom in investment. On the other side of the ledger, austerity is ramped up with a £19bn real-terms cut in proposed government spending. Hunt hid this beneath his fanfare about tax cuts, which are themselves so much sleight of hand, set against the real tax rises accumulated since 2019.

Hunt claimed to be able to afford the tax cuts for business, and the cut in National Insurance, while still being on track for public debt to fall in the long term, purely on the basis of the forecast from the Office of Budgetary Responsibility. However, it is rapidly emerging how much of this is wishful thinking and obfuscation. The OBR itself notes:

‘1.22 … Our forecast again incorporates £6.2 billion of extra revenue in 2028-29 from the Government’s stated policy of increasing fuel duty rates in line with RPI inflation and the reversal of the ‘temporary’ 5p cut. If, like all Chancellors since 2011, rates are instead held at the current rate then more than 43 percent of the headroom in 2028-29 would be removed and debt would no longer be falling’.

That’s almost half the fiscal space gone right there. The Chancellor’s calculations are all based on OBR projections for government revenue, while that institution has something of a track record of producing conveniently favourable projections for Tory Chancellors.

The cut in National Insurance has to be set against the effects of so-called ‘fiscal drag’. Since the Chancellor has frozen tax thresholds and allowances, this means that as pay rises, for some at least, to take account of inflation, people will be dragged into higher tax bands, while their purchasing power does not change. According to the OBR, ‘nearly 4 million additional individuals will be expected to pay income tax, 3 million more will have moved to the higher rate, and 400,000 more onto the additional rate.’

Thus many people on low incomes, who were not paying income tax, are being dragged into the basic rate, while some at the higher end of the basic rate will see their income cross over into the higher rate. This effect will count against the rise in the national minimum wage to come in January 2024. It has been pointed out that all this still leaves a 3.5% fall in real living standards ‘between the last election and the coming one’ which is the greatest fall ‘since ONS records began in the 1950s’. Meanwhile, the TUC points out that real pay remains 2.9% (£18 per week) lower than it was at the start of 2008, a statistic which itself hides a considerable inequality in distribution.

After us, the deluge

It is also fairly typical of the Tory approach that the NI cut will benefit the better off rather than those on lower incomes. In fact, the IPPR has already calculated that ‘the richest 10 per cent of the population’ will receive ‘48 per cent of the gains’. Moreover, the south-east will gain more than the north: the Tories take every chance to increase inequality. Hunt knows there are more Tory votes among those who will benefit. This is all about electioneering, then, but probably not about winning. The catastrophic impact of the real-terms cuts in public services and any shortfall in government finances compared to the OBR forecasts, which has to be considered highly likely, will leave a huge fiscal problem for the next government. The legerdemain of these fiscal plans indicates that Hunt does not expect the Tories to be that next government.

Among the tax breaks for business is the measure to allow firms to offset any investments, on a permanent basis, which alone will cost £11bn a year. This and other tax breaks are, according to the OBR (see section 1.18), projected to raise £14 billion in extra business investment ‘over the forecast horizon’. Alongside the tax breaks are a host of measures to weaken regulation, and so supposedly encourage investment. However, these moves are the same wheeze which Truss tried, believing that tax breaks for capital encourage investment. This has been proved wrong over and again for over the last forty years. The measures may have some effect in increasing profits for the big corporations, but it is doubtful that this will lead to significantly greater investment, any more than they have done in the past. The fact that the City is reacting ‘calmly’ to the fiscal statement is only to be expected.

Possibly the most absurd aspect of the fiscal statement are the plans for increasing productivity in public services. Ludicrously, the government is relying upon AI to produce the gains in productivity that the real-terms budget cuts demand. For the NHS, the prediction is of a ‘1.5-2% per annum growth in labour productivity over the next 15 years’ through ‘full use of new technology that reduces the time for administrative tasks … including identifying where AI can be used to automate administrative tasks, as well as improving the accuracy and efficiency of diagnostic tools’ (2.19). At point 2.22 in the Treasury’s report, it further states that: ‘As well as mainstreaming AI, the government is also exploring the use of other cutting-edge technologies, including quantum, in the public sector.’ Including ‘quantum’? Is there a fan of the Ant Man films at the Treasury, or does the government lack the first notion about ‘cutting-edge technology’ and what it is likely to be able to do? I’d guess the latter.

What we are facing in reality, as opposed to science fantasy, is a meltdown in public services, the fallout from which will bring about yet more costs for the next government, never mind the social catastrophes that follow. One of the serious problems faced by the economy, from the point of view of capital, is the shortage of workers, with huge numbers too unwell to work. A rational approach to this problem would be funding for the NHS, but the Tory response is vicious sanctions against benefit claimants. These will not work, and will only cause terrible suffering while doing nothing to deal with labour shortages.

At the very moment that Hunt was outlining his plans, the OBR announced it had ‘revised down its estimate of the medium-term potential growth rate of the economy to 1.6%, from 1.8% at the March budget.’ The supposed ‘headroom’ Hunt is using to slash the public sector was therefore shrinking as he spoke. The only realistic conclusion to draw from this farrago of nonsense in the Autumn Statement is that the Tories are fully intent on salting the earth before they lose the next election.