Chris Bambery

Chris Bambery

Sunak’s Budget: A 2023 Election, but not a Big Shift in British Capitalism

Reading Time: 4 minutes

In the first of his regular columns from London, Chris Bambery sifts the reality from the rhetoric of Tory economic strategy, and argues that a 2023 election is a real possibility.

The bookies will not be taking bets on a Westminster UK General Election being held in the spring of 2023. Wednesday’s Budget only seems to have confirmed the widespread belief on the banks of the Thames that that is when Boris Johnson will call the poll.

The Prime Minister and his Chancellor, Rishi Sunak, will have been delighted by the front pages of the English press featuring the two of them grinning as they stood behind a pub bar holding up pints of foaming ale in celebration of the cut on duty for numerous wines, beers and spirits. The headlines accompanying them hailed Sunak as the “big spender.”

According to Downing Street, Mr Sunak told the cabinet on Wednesday morning that his Budget “will deliver a stronger economy for the British people” with the “levelling-up” agenda – spreading prosperity around the country – a “golden thread” running through it.

Even before the Chancellor stood up in the House of Commons to deliver his Budget speech we’d been told that there would be:

• £6.9bn for English city regions to spend on train, tram, bus and cycle projects – including the £4.2bn promised in 2019 alongside funding for buses announced by the Prime Minister in 2020

• £5.9bn for NHS England to tackle the backlog of people waiting for tests and scans

• A rise in the National Living Wage from £8.91 per hour to £9.50, to come into effect from 1 April

• £2.6bn to be spent on creating 30,000 new school places for children with special educational needs and disabilities

• £1.6bn over three years to roll out new T-levels for 16 to 19-year-olds and £550m for adult skills in England

Accompanying this was the promise to end the public sector pay freeze, although any pay increase will be kept below the rate of inflation, expected to spike at five percent this winter. In other words a pay cut!

When Sunak did stand up in the Commons he made a promise to compensate Universal Credit (UC) claimants facing a cut to their incomes by tweaking the ‘taper rate’ for pay, cutting it from 63p in the pound at present to 55p from no later than 1 December. This will allow some UC claimants to keep more of their benefit in addition to wage income. But it will only aid a fraction of the millions facing loss of income, and not the poorest.

Sunak reassured Tory supporters he was committed to cutting taxes before the next election, which he probably will, and in the time honoured fashion of shifting the tax burden down the income scale. But this Budget was not about the middle class Tory voters in the South East of England, the mainstay of the Conservative membership. A continuing property boom will keep them sweet because they are homeowners, and many landlords.

This Budget was about buttressing Tory support in the so-called “Red Wall” seats the Tories took from Labour in the north of England and the Midlands in December 2019. But the promise of a bright future based on new investment to bring jobs to these areas, boosting research and development and increasing productivity, remains only a promise. Delivery would involve a major shift in British capitalism.

The problems facing the British economy are historic, a product of Britain’s early industrialisation based on relatively small family firms. The peculiarities of this development remain something the British establishment – ever keen to view their state as the cloth from which all others were cut – don’t discuss in public.

Industrialisation in the United States, Germany and Japan was reliant on state intervention. In the US the Civil War, two world wars and the Korean War were key motors. State led models persist, as in the cases of China, South Korea, Taiwan, Singapore and Vietnam. For all the rhetoric of “levelling-up” the scale of public investment Johnson and Sunak have committed themselves to falls far, far short of what was used in those states.

Secondly, the British economy may experience a post-lockdown bounce, but the forecasts for growth in 2024 and 2025 are just 1.3% and 1.6% respectively. Labour Shadow Chancellor, Rachel Reeves, contrasted growth rates during the decade and more of Tory rule to those in the Tony Blair and Gordon Brown years. But then, at a time of global growth, they were just above two percent, and were considered “anaemic” at the time.

The prospects of a new industrial revolution based on soaring productivity (currently the worst of the European and North American economies) and British corporations moving research and development back to the UK seem remote.

Meanwhile, Sunak moved to bolster City of London competitiveness as a global financial centre by reducing the bank surcharge, which is levied on profits, from 8% to 3%. That more than makes up for the increase in corporation tax. In other words, the old contours of British capitalism – weak productivity and financialisation, are still very much in evidence.

In the immediate aftermath of the Brexit referendum there was much talk of how the investment banks, post 2008 almost entirely American, would up shop and move to Paris or Berlin. There was never any chance of that. They fear the German and French governments would regulate them too much and prefer London. If they chose to move, it would be for New York.

What does this mean for Scotland? Not much despite some increases in spending. Johnson knows he can’t expect gains north of the border. The Scottish Tories likely peaked in the 2015 Westminster General Election and would struggle to repeat that result.

But talk at Westminster is that both Johnson and Nicola Sturgeon like the prospect of a 2023 election. Johnson can play to his gallery by bashing the Scottish government and in response Sturgeon can play to hers.

Meanwhile the people of the North of England will be hoping for an economic revival which will never arrive. Johnson hopes he can keep those hopes alive until an early election.

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