LABOUR'S FIRST BUDGET: reinforcing unequal Britain


The political process in contemporary Britain seldom raises itself above the 
sound bites thought necessary to manipulate and deceive the public. The 
first Labour budget carefully followed this pattern. This budget, Chancellor 
Gordon Brown informed us, would `ensure Britain is equipped to rise to the 
challenge of the new and fast changing global economy'. It would do this, 
unlike previous budgets, without pursuing the short term interests of the 
few. His budget - a `people's budget for Britain's future' - would advance 
the long-term interests of the many. But, as DAVID YAFFE explains below, all 
this bluster is designed to conceal the harsh reality. Brown's Labour budget 
offers only contradictory proposals to tackle the economic problems facing 
Britain's parasitic and crisis-ridden economy while reinforcing inequality 
in an increasingly polarised class society.

Labour's dilemma

The Daily Mail was essentially right when it said, `Truly there is something 
Tory about this first Labour Budget for a generation.' Labour will continue 
with the attempt to build a competitive economy, like its Tory predecessors, 
through deregulated labour markets and cut-backs and privatisation of state 
welfare. Non-wage `labour' costs to capital will be reduced, forcing millions 
of working class people to face ever lower levels of social protection. The 
problem with this is that it will almost certainly place great strains on the 
coalition of forces which united to drive the Conservatives from power and 
elected Labour.

In a recent article, David Marquand describes that coalition as encompassing 
`virtually the whole of the professional class, large swathes of corporate-
sector management, what is left of the old, organised, upper-working-class 
Labour interest that the party came into existence to serve, and most of the 
ÒnewÓ Thatcherite working class that swung to the right in the late-1970s and 
early 1980s.' All these beneficiaries of the first Thatcher governments are 
not united by anything positive, but by fear of the political and social 
upheavals of a continuing neo-liberal offensive. They do not wish to reverse 
the process but to call a halt to it.

But, as Marquand points out, this is not possible. The brutal logic of the 
global market-place entails `relentless and disruptive changes in virtually 
every sphere of social life'. His solution, however, is equally unrealisable. 
It is that Labour, which differs from Thatcherite Tories in accepting that 
Britain can only play a significant role in world affairs through close 
involvement in the European Union, should take a further step to embrace and 
defend the European social model from destruction at the hands of a rampant 
global capitalism (The Guardian 16 July 1997).

Marquand does not understand why Blair's Labour Party is now in power and 
moreover acceptable to the ruling class. The representatives of British 
multinational capital are actually at the centre of Labour's coalition. They 
are there because, unlike the discredited and divided Tories, Labour is in a 
better position, as economic conditions deteriorate, to prevent an alliance 
against capitalism developing between the poor working class and sections of 
the middle class threatened with proletarianisation. Labour's dilemma is how 
to hold this coalition together in economic circumstances and with economic 
policies which must blow it apart. Hence the Budget speech rhetoric of urging 
`every business to play its part in a national crusade to equip this country 
for the future by taking on young unemployed men and women', while in reality 
attempting to force young people into dead-end jobs at poverty pay. Or the 
hollow call: ÔIt is time for the welfare state to put opportunity again into 
people's hands', while slashing social provision and removing basic social 
protection from millions of working class people. The Budget rhetoric soon 
recedes when confronted with the harsh reality of the British economy and 
Labour's economic and social policies for dealing with it.

The real budget

Public spending will be cut. In 1997/8 the control total will be £200m 
lower than under the Tory plans of November 1996 and unchanged from those 
for 1998/9. The budget deficit will be continually reduced throughout 
Labour's term of office and three different possible plans were outlined for 
doing this. The first allowed only a 0.75% growth in real spending a year 
for the three years from 1999/2000 (zero, if Labour's new higher forecast 
for inflation is used), leading to a fall in public spending to 36.7% of GDP 
in 2002, the lowest level since 1966. Other projections include rises in 
spending of 1.5% and 2.25% respectively. These will also bring public 
spending levels as a proportion of GDP below the levels of the last Tory 
government. Labour's plans for public spending are far harsher than the 
Tories achieved during their 18 years of power. The Institute of Fiscal 
Studies has estimated that if public spending had continued at the Tories's 
18-year trend rate of growth, then it would be up to £35bn higher at the 
end of this parliament than under Labour.

A great deal has been made of the £2.2bn extra spending taken from 
contingency reserves for increased spending on health and education. Last 
year the National Heath Service was left with a deficit of at least £350m. 
The extra £1.2bn found for 1998/9 represents a real growth of only 2.25% - 
less than the 3% average yearly growth attained over 18 years of Tory 
governments. This simply papers over the cracks. The baseline figure for NHS 
spending will not rise and the health service faces a 3% cut in its budget 
for 1999-2000. Spending on private health care has doubled from 5% to 10% of 
public health spending since 1979. Labour's present plans can only accelerate 
this process and leave millions of working class people without adequate 
health provision.

The £1bn addition to the local authorities' education budget should prevent 
the sacking of about 12,000 teachers and stop the growth of class sizes of 
more than 30 spreading from primary into secondary schools. It budgets for a 
`modest' increase in teachers' pay. An extra £1.3bn from the windfall tax 
will begin to tackle the chronic neglect of school buildings, going some way 
towards the estimated £3.2bn backlog of repairs. For what is Labour's main 
priority area, this is hardly earth- shattering. Further increases in 
education and health spending would appear to come from funds drawn from the 
national lottery.

All other government departments' and local authorities' expenditure is 
governed by Labour's rigid acceptance of previous Tory plans. Local 
authorities, faced with a real-term decrease in their budget, have warned 
the government that Ôunacceptable' cuts to fire, police, highways and 
environmental protection and consumer budgets will need to be made this year.

Disciplining the poor

£3.5bn from the one-off £5.2bn windfall tax on the excess profits of the 
privatised utilities will be used to finance the Labour's much-trumpeted 
`New Deal' Welfare to Work programme. This `New Deal' is more draconian than 
that proposed by the Tories. The young unemployed will be offered four 
options under the scheme: working for a private sector employer, receiving a 
£60 a week subsidy for six months; voluntary work; joining an environmental 
task force or going on a training course. All benefit will be cut from those 
who `unreasonably' refuse one of these options. Pregnant women, lone parents 
and those with long-term disabilities will lose up to 40% of their benefits 
if they refuse. A £75-a-week incentive will be given to employers who take 
on the long-term adult unemployed. Finally, lone parents who have not been 
in work will be `invited' by the employment service for a job interview and 
encouraged to find work and given help with childcare facilities. At the 
same time, no doubt as further `encouragement', Labour will go ahead with 
Tory plans to cut the one parent family benefit of £6.30 a week and the 
£5.20 paid to single parents on Income Support. 

A more detailed discussion of this programme appears elsewhere in this 
issue of FRFI. Its significance lies in Labour's determination to discipline 
and control the growing numbers of young people who increasingly reject and 
represent a potential threat to the social norms imposed by capitalist 
society. At the same time, drawing them into the workforce as cheap labour, 
even for short periods of time, serves the interests of capital, by 
pressurising the rest of the working class into accepting the ever worsening 
conditions at work at lower rates of pay. The lack of jobs for young people 
relates to the aggregate conditions of the economy not the lack of training 
and skills of young people. Capitalism cannot solve youth unemployment 
because it is no longer capable of creating sufficient long-term permanent 
jobs.

Keeping the middle classes sweet

The British economy is in the throes of an inflationary consumer boom. 
The housing market and the £35bn windfall payouts from building society 
flotations will fuel it further. Yet New Labour stood by its promises not 
to increase direct taxes on the middle classes. The small rise in consumer 
taxes through increased duties on petrol, alcohol and cigarettes, the cut in 
mortgage interest tax relief to 10 per cent and the rise in stamp duty on 
houses above £250,000 will lower consumer spending by a mere £2bn. On 
average this is equivalent to a 1p increase on income tax. Yet the middle 
classes are subsidised by some £10bn each year through tax incentives on 
pensions, PEPs and TESSAs - equivalent to 5p on income tax. They are the 
biggest beneficiaries from building society payouts. The budget not only 
did not reduce these subsidies but announced their continuation through 
individual savings accounts based on the principle of PEPs and TESSAs to be 
introduced in 1999. New Labour knows it must hold together the coalition 
that put it into power, while it puts into place the draconian measures 
needed to discipline and control the most impoverished sections of the 
working class.

This political decision has economic consequences. While parts of the 
British economy are booming, large sections of manufacturing industry are 
stagnating. Unable to slow down the consumer boom by substantially higher 
taxes, Labour has to rely on a tighter monetary policy. The `independent' 
Bank of England is keen to oblige and has raised interest rates three times 
over the last three months with devastating consequences for manufacturing 
industry, as the pound surges and exports become less competitive. The pound 
has risen over 30% against the DM and 24% against a basket of currencies 
since last August. In May manufacturing output fell by 1.1% and engineering 
output by 2.3%, the biggest monthly decline since production was disrupted 
by freezing weather in 1987. The situation will deteriorate as more interest 
rate rises become necessary to curb the consumer boom.

The real economy

Since 1980, the Chancellor informed us, Britain has invested a lower share 
of GDP than most other industrialised countries. For every £100 invested per 
worker in Britain, Germany has invested over £140, The US and France around 
£150 and Japan over £160. He intends to change this by developing a tax 
system which encourages saving and which favours and rewards higher long 
term investment. So the main tax raising measure in the budget was the 
abolition of tax credits on advanced corporation tax (ACT) raising some 
£14bn over four years. Companies pay ACT when dividends are paid out. 
Shareholders get an equivalent credit and tax-exempt holders such as pension 
funds can claim repayment. Brown said he would abolish such credits because 
they encouraged companies to pay out dividends rather than reinvest profits. 
Yet the impact of this measure taking account of the 2% reduction in 
corporation tax was to increase taxation on the corporate sector by some 
£2bn a year. It is unlikely to encourage corporations and pensions to invest 
more in Britain.

While investment in Britain is stagnating - investment as a proportion of 
GDP has fallen continuously during the current economic upswing with 
manufacturing investment almost 13% below its 1990 peak - British investment 
abroad is booming. In 1993, following the 1990-92 recession, British 
investment overseas (direct and portfolio) at £101.9bn, was greater than the 
total capital investment in Britain at £94.2bn and more than eight times the 
investment in manufacturing industry. In 1996 even after the recovery in 
domestic investment and following a fall in portfolio investment abroad, 
British overseas investment was equivalent to 77.9% of total capital 
investment in Britain and nearly six times that invested in manufacturing 
industry.

Labour's budget offers no solution to Britain's economic problems. As 
economic conditions further deteriorate, and the economy stagnates, the 
Labour coalition will start to fall apart. For the first time in a number of 
years the opportunity will arise to build a new coalition of forces - a 
coalition which will have the impoverished working class at its core - this 
time against Labour and the capitalist system it fully supports.  *