Trade Wars

George Kerevan: Why this week’s budget will be a smokescreen for the Conservatives’ real plans

WARNING: This Wednesday brings Chancellor Rishi Sunak’s latest budget. The warning lies in this: to this day Sunak has printed money to spend as if there is no tomorrow. Or rather, the Bank of England did it on his behalf.

Some £ 895 billion was invented at the push of a Bank of England computer switch and used to support the UK economy during the pandemic. Now this is all about to end.

Wednesday’s budget marks the start of a sharp reversal in the Treasury’s financial gears. It is true that there will be financial gifts to sweeten the Chancellor’s Pill. We’ve already had the usual pre-budget announcements designed to make us think that Mr. Sunak has nothing to do with handing out five tickets. Urban areas in England will receive an additional £ 6.9 billion for transport projects. Another £ 1.6 billion must be made available to deploy new technical skills south of the border. There will be an assortment of Barnett consequences for Scotland.

But all of this is a smokescreen for a major change in the Conservatives’ tax and spending policy. The Chancellor is a former banker with a banker’s obsession to keep the national finances in order … to better repay the loans to his friends in the City.

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Sunak does not care about welfare for the poor or stimulating economic growth. He is anxious to “balance the national books” in spite of everything. Particularly because inflation has come back strong due to post-Covid labor and material shortages. In turn, this scared off investors, who started selling government securities, pushing interest rates up.

But rising interest rates are a problem when it comes to balancing the Chancellor’s books. Higher interest rates mean Sunak has to spend more money on servicing the national debt. Already he will need to find around £ 15bn more to repay government interest over what was planned in March. This means less cash available for utility spending.

The outlook is for even higher interest rates to come. The Governor of the Bank of England (the imaginative no, yes man Andrew Bailey) has just announced that an interest rate hike by the Bank is “inevitable”.

Granted, that kept them at a 327-year low of 0.1% during the pandemic and they can’t stay low forever. But raising rates now – given the degree of economic uncertainty – is not only counterintuitive, but also dangerous.

As it stands, UK retail sales have fallen for five consecutive months. If Christmas is “canceled” by supply shortages and / or an upsurge in the pandemic, any economic recovery will falter. In this context, charging consumers more for their credit card purchases is certainly crazy.

What can we expect from the Chancellor on Wednesday? It has a little more leeway compared to its spring budget in March. Treasury tax revenues turned out to be higher than expected, cutting back on planned borrowing and bringing in £ 50bn that Sunak didn’t think he had. It’s like finding money at the back of the couch. Of course, this is a unique case, so don’t be fooled by his Wednesday giveaways.

In early September, the Treasury quietly released its spending plans for England for the next two years. They show a modest overall increase. But in order to meet published commitments to the NHS and defense, funding for so-called ‘unprotected’ departments (local government, prisons, courts) will need to be cut – by £ 2 billion in 2023. Even then, the authority of the Institute for Fiscal Studies (IFS) predicts that the English NHS will have an annual budget deficit of £ 5 billion by 2025.

IFS figures also show English

(excluding education) local council spending per capita has been cut by a quarter over the past decade. He’s about to fall even more.

All of this adds up to a new round of austerity before we even discuss taxation. Sunak’s March budget was the biggest tax hike in almost 30 years, adding £ 28bn a year in extra taxes!

Much of this comes from a

four-year freeze on income tax cutoffs, so most people didn’t notice the blow. And that was before the hike in national insurance contributions that shattered the manifestos last month. This adds up to an additional £ 14bn per year in the Chancellor’s coffers which are rapidly filling up. Yet although UK national income tax is now at near record highs in peacetime, public services are faltering.

It’s important not to dismiss Sunak’s Wednesday budget as another example of a Tory Chancellor playing Scrooge. Sunak is grappling with a major collapse of the entire British capitalist model – a collapse exacerbated by Covid and Brexit. A collapse which must play a key role in framing the arguments in favor of Scottish independence.

In the late 1990s, Gordon Brown oversaw the final stages of the UK’s deindustrialization. A precarious economy is now based on consumer demand fueled by debt and supported by unsustainable real estate values.

Consumer needs are mainly met by cheap imports from Asia. The City’s bloated financial sector then derives its profits from mortgages, consumer credit, facilitating capital investment in Asian manufacturing, and illegal money laundering on a global scale. Meanwhile, the UK is spending huge sums on armaments as America’s main poodle, in order to keep this international network of trade and finance secure.

But this economic house of cards is now collapsing, exacerbated by the pandemic and Brexit. Covid has accelerated the reshaping of the global economy, sparking inflation, trade wars, and technological and military competition between the West and China. The UK economy is unable to survive these storms. Without a manufacturing base of its own, the UK lives on a mountain of debt and electronic printing of fictitious money from the Bank of England.

But higher interest rates and higher taxes will soon erode the ability of ordinary people to borrow and consume – or to repay their debts. Moreover, the Conservatives’ ideological obsession with free trade will flood the UK economy with cheap foreign goods, finally wiping out what is left of the industry.

This explains the pressure exerted on Sunak by the City and the foreign capital based in London to “balance the books”, that is to say to privilege the repayments of interest rates to the holders of bonds, while the economy British collapse.

Sunak’s budgets over the next five years will focus on the needs of the city, regardless of the populist nonsense Boris touts about “leveling up.” Which explains Sunak’s announcement that the only tax he intends to cut on Wednesday is the levy on bank profits.

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Whatever spending increases emerge from the budget (and the more comprehensive spending review slated for the end of this month), expect them to focus on large capital projects such as the nuclear energy, not on vital utilities.

Such investment projects will be billed as a “race to the top” or a New Green Deal, but they represent Sunak shoveling money into the banks and the investment industry.

Scotland urgently needs to escape this nightmare and create an economy based on need and not on profit, on local manufacturing and not on the financial game.

There is no point in asking Sunak to do this or that for Scotland in Wednesday’s budget. His hands are tied by the insane logic of the current financial system and Britain’s deindustrialised pseudo-economy. Instead, we should be planning a healthier Scottish alternative.