After the right turn, the reverse gear. Despite having abandoned the lowering of taxes on the highest incomes, the British Chancellor of the Exchequer, Kwasi Kwarteng, has left intact 49,000 of the 51,400 million euros of his tax cut plan.
The overnight change on top rents It does not imply a change of strategy. Kwarteng continues to double tax exemptions for those with rights to acquire shares, continues to cut more than 1,100 million euros from the tax on dividends and allows free rein when it comes to bonuses to bankers. It also goes ahead with its privileges for tax evaders. Likewise, the 2,291 million euros reserved for the duty free shopping of foreign tourists and the 21,710 million euros of corporate tax cuts that, according to former Minister of Economy Rishi Sunak, have not contributed at all to the investment. By continuing to reject a new tax on windfall profits, the minister may be handing out billions to oil and gas tycoons.
The Kwarteng Friday Gathering with the Office of Budget Responsibility must have ended his belief that he would be able to pay for his tax cuts by evoking an assumption 2.5% annual growth. And after the crash comes the bloodbath: a massacre of public spending bigger than the austerity of former Economy Minister George Osborne [2015-2016] or the IMF cuts of 1976. These are cuts so severe that they will stunt rather than stimulate growth, wreck education, and weaken our most precious asset, the NHS.
As inflation erodes the value of departmental budgets, it’s looming, according to the Resolution Foundation, a cut in public spending by 2026 of between €42.375 million and €53.8 billion: the equivalent of closing all schools in England. While the prime minister has ruled out changes in pensions, a typical family that receives the ‘universal credit’ (monthly benefit to households with fewer resources and which has already suffered a cut of about 1,700 euros in the form of a reduction of 22 euros per week last October and April’s increase below inflation) will now see its losses reach up to 2,289 euros per year if benefits are linked to earnings and not to prices. No family I know of can afford to lose that much.
The previous financial crisis taught me that leaders must be three steps ahead of events and never behind. The current national emergency requires adequate coordination of monetary and fiscal policy that offers us a convincing path out of stagflation. A national economic dialogue with business and labor is also needed if there is to be any chance for citizens to feel that “we are all in this together” and that there is equal sacrifice. And, as in 2009, now that these are also global problems that require global solutions, the current economic emergency requires coordinated international action, both to avoid the danger posed by excessive currency volatility and what is likely to be a monetary surplus, as if to counteract the tangible threat to stability that comes from under-regulated and under-regulated shadow banking.
So why, when the country is threatened by a fall in the value of the pounda debt load of 3 trillion pounds (3.4 trillion euros) and a million more unemployed, ministers trample on accountability mechanisms, trusted officials fired and cause political disorder in the midst of market dysfunction, thus lighting fires precisely at the time they should be put out?
To discover the reason, you have to go back to 2012, to Britannia Unchained, a book that counted Liz Truss and Kwarteng among its authors. The pound may crash, borrowing costs may skyrocket, pension funds may teeter to the brink of collapse, the mortgage market may crumble, pensions may freeze, children may go hungry, and inequality may widen further. All this is, according to them, a price worth paying, since the only economy that can succeed is the one that is built around and serves the needs of the venture capitalists, who must be induced to stay. in the UK, granting them freedom from labour, environmental and social laws and, ideally, tax exemption.
However, even successful venture capitalists should admit that they don’t get rich on their own. They have to hire workers whose education we British pay for; travel on state-maintained highways and railroads; invest in innovations born in our publicly funded universities; and depend on a public health system that our taxes finance.
Venture capital depends on social capital, markets must be based on morality. Public investment is necessary to create the conditions for growth and any sensible growth strategy it has to offer more than just tax cuts and deregulation. It has to support science, innovation, infrastructure and skills, with the right powers in the right places to create internationally competitive industrial sectors. And he has to acknowledge an ancient truth, though lately forgotten: that when the strong help the weak, we all become stronger.
* Gordon Brown was Prime Minister of the United Kingdom from 2007 to 2010.
Translation of Julian Cnochaert.