The economist, JK Galbraith, once said “there are two classes of forecasters: those who don’t know and those who don’t know they don’t know”. In the run-up to Jeremy Hunt’s autumn statement, it became increasingly clear that the government frontbench is populated by the doubly ignorant.
We have heard a lot, in recent weeks, about the ‘black hole’ in government finances that means – in the Chancellor’s words – that “eye-watering” decisions need to be made about the national finances. But, after interventions from several economists, it soon became apparent that the black hole wasn’t an immutable fact of life but the product of treasury accountancy methods, the government’s own arbitrary spending rules and the predictive practices that Galbraith held in such low regard.
The rationale for Hunt’s austerity 2.0 having crumbled, we heard not one mention of the fiscal black hole in last week’s statement – but austerity was still on the table. We were told that cuts remain necessary because “credibility cannot be taken for granted and yesterday’s inflation figures show we must continue a relentless fight to bring it down, including a rock-solid commitment to the public finances”.
Inflation is a very real – and, yes, global – problem. The Office for Budgetary Responsibility (OBR) argued that the main drivers of the soaring cost of living are imported energy and food prices. It is unclear, however, why the Chancellor’s pencilled £28bn cuts to departmental spending will do anything to bring them down – cutting public services won’t change the price of gas.
What is clear is the effect that the cuts will have on people who are already finding it increasingly hard to get by. The OBR has said that, under the measures set out in the statement, it expects household disposable income to decline by an unprecedented 7.1%, unemployment to rise to 4.9%, and a year-long recession (the Bank of England predicted two years). The prospect of people piling up further debts – under increased interest rates – to pay their rent, bills and for the basics should worry politicians.
Even where Hunt pledged to increase spending, the figures are misleading. The Chancellor has provided an extra £2.3bn for school funding – but that only keeps funding per student flat. He promised £3.3bn extra for the NHS – but health service managers have said they need £7bn. And he announced £6bn more for insulating homes – but even combined with existing funding, that isn’t enough to retrofit our inefficient housing stock.
Rather than support local authorities delivering vital services, the Chancellor has reduced their revenue streams while offering them nothing but the ability to raise a regressive tax, council tax, to fill the hole – forcing them to carry the can for the failures of his government.
Things are already at breaking point. More cuts will only worsen outcomes and make it harder for people to navigate complex services – costing more money in the long term. Dysfunctioning government is bad for everyone and the economy. The projections are bleak, but we don’t need OBR forecasts to tell us what happens when the government cuts spending as the economy is contracting; we only need to look at the last 12 years.
The swingeing cuts of the 2010s were implemented in similar circumstances. Then, the results were disastrous. Austerity delivered flatlining growth, ground down wages and conditions at work and destroyed critical social infrastructure when it was needed most. Recent research from the University of Glasgow and the Glasgow Centre for Population Health found that over 330,000 excess deaths were linked to the austerity agenda. Now, the recession we are facing is projected to be deeper, and the resilience of our public services to withstand austerity 2.0 greatly depleted. Combining that with soaring inflation is a recipe for social disaster that will result in more needless deaths.
None of this is necessary. It is true that rising interest rates mean that we are not in the same position to borrow as we were before (although the IPPR has argued that even in this new context there is still headroom for some sustainable borrowing to support households). We should use the tax system instead.
Rather than freezing thresholds and dragging some of the most vulnerable people into paying more, researchers from the University of Warwick have set out a variety of ways to raise revenue from the wealthiest, who were vastly enriched during the pandemic. Measures include simply equalising capital gains tax with income tax (£15.6bn); abolishing non-dom status (£3.6bn); extending National Insurance contributions (NICs) to income from investments and equalising it with income from work (£9.6bn); removing the upper limit on NICs so that those on high salaries pay the same rate as everyone else on all their earnings (£20.9bn); and more. It is a sign of how badly the government has warped the debate that we are talking about cutting nurses’ pay instead.
It’s time to ditch the austerity agenda of those who don’t know what they don’t know and concentrate on what we do know: that millions of working people are facing a cost-of-living crisis, rising unemployment and a deep recession. Those are the challenges Hunt should have addressed in his autumn statement. He has failed to.