The British economy has been in serious trouble, with an annual growth rate of 0.9% since the 2008 economic crash. With that in mind, how do we grow the economy and save our public services?
It is a strange thing to say, but it is true: Jeremy Corbyn and his Shadow Chancellor John McDonnell were essentially in agreement with Liz Truss and Kwasi Kwarteng about the need to turpo-charge the economy.
There are only two options: destroy the welfare state and reject social democracy by slashing funding for essential public services and cutting tax, or accept that taxes are not an evil imposed on us by the state but, a necessary good for a functioning civilized society as well as targeted public investments that will create jobs.
John McDonnell wanted to pump £400bn into public investment with a targeted tax increase for those on income above £80,000. This logic is more in line with the economic and social history of Britain. Let’s be clear about one thing, Britain is closer to European social democracy. And as such, progressive tax is necessary if we want to protect the welfare state.
Liz Truss’ economic policy was a tragic and costly misreading of Reaganomics – for the very simple reason that Britain and America are extremely different political economies. The American state can afford to slash taxes as its economy is much larger, and too powerful for the International Monetary Fund to make disparaging comments on its economic policy. Liz Truss’ ‘supply-side’ reform meant making it easier for business and markets to be more competitive. With sweet irony, it was the market that rejected her and ended her premiership.
Will higher taxes lead to economic growth?
With industrial strikes across all parts of the public sector – from schools, civil service and nurses – Jeremy Hunt, the chancellor, will impose austerity that nobody voted for (with the exception of Conservative MPs).
Maybe then, at this moment, growing the economy should be a secondary focus. With the Bank of England raising interest rates to 3% and a forecast of a two-year long recession, saving the welfare state should be the primary duty. Increasing interest rates, which was introduced to fight inflation, also has a negative impact on the average person: it reduces disposable income, increases mortgages and reduces market confidence. In short, higher taxes on those who can afford it. And a final end to this obscenity where major international companies pay almost no tax in this country.
Jeremy Hunt has a choice to either tax wealth (inheritance, landlord incomes, tightening up tax avoidance laws). Or he can suppress wage increase demands being made by the unions. With high inflation and interest rates, this is a hard sell.
This second round of austerity – cuts to public sector pay and funding – is going to fail miserably in two ways. One way it will fail is due to the strikes: inflation is so high that even an 8% pay rise is a real pay cut. Secondly, the Liz Truss-Kwasi Kwarteng ‘fiscal event’ was such a miserable and catastrophic failure that they have no one else to blame but themselves.
Instead of progressive higher taxes, Jeremy Hunt supported more cuts. More ‘belt tightening’ for those who do not have a belt. More ‘efficiency and productive’ savings in the NHS, schools and civil service. This is not right.