âAt a time of fragile economic recovery, the government is squeezing the budgets of households, workers and retirees. There is no sign of leveling up.
Prem Sikka is Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labor member of the House of Lords and Editor-in-Chief of Left Foot Forward.
The Chancellor’s budget statement will not lead to an economic renaissance, reduce inequalities or improve household budgets.
Household budgets are squeezed by rising energy and food prices. The inflation rate is expected to soon reach 5% and erode the purchasing power of wages and savings, but the Chancellor has offered no relief by eliminating VAT on heating oil, imposing rent controls or by challenging corporate profits.
Raising the overall hourly minimum wage rate to Â£ 9.50 from April 1, 2022 would give temporary relief to 2.6 million workers, but would be eroded by inflation, income tax and social security contributions. higher national insurance. Freezing the personal income tax allowance and higher rate threshold until 2026 reduces the annual purchasing power of households by Â£ 13.9 billion. From April 2022, the #JohnsonTax, i.e. the 1.25% increase in national insurance contributions, will cut between Â£ 16.7 billion and Â£ 18.2 billion per year on the household budget. The government has backed down a bit on the Â£ 6bn universal credit cut by amending phased deals, which allow people at work to keep more of their wages. But some 4.4 million families will be worse off by Â£ 4 billion a year.
The word âwomenâ is only mentioned once in the Chancellor’s statement and is not accompanied by policies to eliminate the gender pay gap, tax disadvantages or to provide child care. additional children. The “disabled” and “retirees” are not mentioned.
With the suspension of the triple foreclosure, the state pension is expected to increase by 3.1% from April 2022. This increase will be wiped out by rising inflation. The current average public pension is around Â£ 8,000 per year, which is equivalent to 25% of average earnings and is the lowest in the industrialized world. The promised 3.1% increase is already wiped out by the expected 5% inflation rate. The government refused to honor the triple lockdown. He claimed he was unable to find Â£ 4.7bn to increase the state pension by 8.3%, in line with growth in average incomes, even though the National Insurance Fund account has a surplus of Â£ 37 billion. But the Chancellor has found resources to give a Â£ 4bn tax cut to banks awash with cash, windfall profits and record dividends. Wealthy elites taking short flights, in times of climate crisis, will benefit from a Â£ 130million reduction in tariffs on air passengers.
The government cut would worsen the situation for the average worker by almost Â£ 13,000 a year by the mid-2020s. It could be avoided through redistribution. By taxing capital gains at the same rate as earned income, around Â£ 17bn per year could be collected, plus an additional Â£ 8bn in national insurance, as no national insurance is currently paid on unearned income. The same treatment of dividends would bring in an additional Â£ 6bn. By extending the 12% national insurance rate to incomes above Â£ 50,300, Â£ 14 billion can be increased. A wealth tax can levy up to 304.1 billion pounds sterling over a 5-year period. Such policies reduce inequalities and provide resources for public investment, but are ignored by the government.
What about the future? The Chancellor said the economy is growing at a record high. In fact, this is due to some statistical quirks caused by the Covid lockdown. With the rebound from the reopening, the economy could grow 6.5% this year and 6% in 2022. The forecasts are 2.1%, 1.3% and 1.6% growth over the three coming years. Squeezing household budgets could derail assumed growth rates.
One of the main reasons for weak economic growth is that a decade of low interest rates, inflation and corporate taxes has not produced larger investments in productive assets or in research and development. development (R&D). British companies have never shown a great appetite for risky innovation and the state has had to bear the cost. The government’s response is therefore to reduce R&D spending from Â£ 2 billion to Â£ 20 billion. By 2024, it would spend around 1.1% of GDP on R&D; almost the lowest public spending in Europe. It will not bring high productivity and growth as the Chancellor claims.
The government’s mismanagement of Brexit is slowing the economy. The Office for Budget Responsibility (OBR) said that âsupply bottlenecks have been exacerbated by changes in migration and trade regimes following Brexit. Energy prices have skyrocketed, labor shortages have arisen in some occupations, and there have been bottlenecks in some supply chains. These can be expected to slow down production growth â. Yet the Chancellor has not proposed any policies to address the structural problems.
The high profile free port policy was also not fully endorsed by the OBR. Free ports are economic zones where normal customs duties, VAT, taxes, national insurance and commercial rates do not apply. The government is distributing sweeteners worth an average of Â£ 50million a year to get businesses to locate there. The OBR said: “There is also broader uncertainty as to how much of the economic activity that takes place in a free port will have been displaced from other parts of the UK and how much is actually additional”, that is, free ports will not generate an economic rebirth.
The budget is a continuation of the government’s class wars. At a time of fragile economic recovery, it is squeezing the budgets of households, workers and retirees. There is no sign of moving upmarket.
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