It’s not the cap on bankers’ bonuses holding us back
How do we explain Mr Kwarteng’s mega-mini-budget? Why do something so obviously “up yours” to the working people of Britain as eliminating the top rate of tax for earners above £150,000, while sanctioning part-time, low-paid workers?
Either he’s trying to fulfil Ms Truss’s ambition to be unpopular. Or he’s playing Santa Claus and delivering the Tory donors’ wish list. He’s succeeding in both.
The Tory backbenchers weren’t happy. The people of Blyth Valley weren’t dancing in the streets. Red Wall MPs will be thinking about their impending career changes.
The pound crashed – which will spike inflation. Interest rates will rise, along with mortgages and rents.
They have no mandate for this. 0.2% of the electorate voted for these policies – the 81,316 Tory members in the leadership race. Tory MPs were elected on a manifesto of levelling-up, not trickling down.
The theory of trickle-down is simple. Sometimes called supply-side economics, it claims that if rich people get a tax cut, they’ll invest all their extra money and create loads of jobs, the economy will grow, tax receipts will increase, and unicorns and bunny rabbits will frolic in sunlit uplands.
It doesn’t work. It never has. American supply-side politicians would say, “a rising tide lifts all boats”. The truth is, unless you can’t afford a yacht, a rising tide will drown you.
The International Monetary Fund, the champion of capitalist orthodoxy, said unambiguously, “when the rich get richer, benefits do not trickle down”. Research published in 2020 by the LSE, based on data from eighteen OECD countries including the UK, was even more damning. Tax cuts for the rich since the 1980s have increased income inequality without any gains in economic performance.
You’ve probably seen various budget calculators – where you put in your earnings and it tells you how much better or worse off you are. But they only tell half the story. Take the energy price-cap. With an average sized bill, you’ll be paying £2500 direct to the energy company. But you’ll also be paying another £2500 to the energy company via the Government. That’s still your money. That £2500 will inevitably be cut from your health service, your kids’ education, your parents social care, your police and fire services. If you work anywhere in the public sector, they’ll try to take it out of your wages. It should come from a windfall tax.
Economic prosperity has to be sustainable. At its simplest, growth is just more money changing hands. It doesn’t have to mean consumption of more material goods, or people buying bigger cars. We could spend more on health and education and youth services. More on retrofitting homes. More on better public transport. And enough to get to 100% clean energy production by building offshore wind farms and clean hydrogen production.
We could invest in public luxury. Libraries with modern computer suites. Publicly owned gardens and swimming pools and exercise classes. More live music and theatre and comedy.
Every business leader I talk to tells me the same thing. Growth stalls without skilled workers.
At the North of Tyne we’ve created a jobs pipeline of 4,635 jobs – over and above those from organic growth. We do it by working closely with businesses. Skills bootcamps that give both those in and out of work the training they need for a good green job.
We have skills programmes supporting people with neurodiversity. People who’ve struggled with drug and alcohol dependency. Carers who are returning to the labour market after years out. And we link it with our child poverty prevention work. Because getting someone a stable, fairly paid job on trade union terms and conditions is one of the best things you can do for them.
And if you want to get more part-time workers working more hours, improve the care system. Child care is so expensive, and in many places so limited, that parents and carers can’t fit into normal working patterns.
It’s not the cap on bankers’ bonuses holding us back. City high-flyers on telephone number salaries are already in receipt of bonuses at a record high – £5.9 billion paid out in March alone. What we need is free life-long education and affordable childcare.
*Originally printed in the Journal and Evening Chronicle 25 Sept 2022