AFTER months in which Labour argued that such is the dire state of the economy that Tory spending limits must be maintained, the Chancellor of the Exchequer now says that further cuts in public expenditure are needed.

When Rachel Reeves says that her task is to fix the foundations of the economy by finding spending cuts to offset the newly discovered fiscal black hole, much of the media echo the Tory charge that she is really signalling her expectation, even intention, to increase taxes later in the year. 

She may be. But our ruling class and its tame media’s anxieties about tax rises are only incidentally centred on the main feature of the tax system, which is to tax workers’ wages at a higher level than interest, rents and profits.

The question raised by any talk about varying the structure of taxation is where taxes fall. The richest 10 per cent of families hold 43 per cent of all wealth. The bottom 50 per cent — and be sure that this includes the greater proportion of people who see themselves as working class — possess less than 10 per cent of wealth.

We cannot avoid or evade tax because for the overwhelming majority of us tax is deducted from our wages or pensions along with, for people in work, National Insurance contributions, which notionally fund health services, benefits and pensions.

Income tax, National Insurance contributions (NICs) and value added tax (VAT) contribute around three-fifths of all revenues. In 2023-24, £277 billion was raised from income tax, £180bn from NICs and £170bn from VAT.

VAT is a flat tax that falls “equally” on products bought by rich and poor alike and therefore it has a disproportionate effect on the poor.

“Fixing the foundations of the economy,” as Reeves defines her task, is a laudable aim. But the foundations of Britain’s capitalist crisis of public finance lie not simply in the errors and inefficiencies of the Tory administration that might be remedied by purposeful government, but in the very structure of ownership and wealth which is organised to allow for the largest accumulation of profits in the privately owned corporate sectors.

When the overwhelming majority of voters, including Tory voters, see public ownership of rail, mail, water and energy as desirable this is not simply a yearning for the more efficient delivery of these services and utilities than private ownership is able to provide. More, it is an expression of a clear understanding that revenues from these myriad transactions should not be privately appropriated but applied to the common good.

The present Labour administration has, with rare exceptions, ruled out the recovery into public ownership of privatised sectors and, less performatively than Gordon Brown in his day but no less systematically, has assured the corporate world that not only are the foundations of private ownership safe but that Labour, even more than its Tory predecessors, holds appeasing the bond markets a central part of its economic strategy. Hence the cuts announced today.

Reeves’s dilemma is highlighted by the necessity to find £1 billion to fund the juniors doctors’ pay increase; something similar for the teachers and a backlog of other public-sector pay claims.

Under this system spending is always about priorities. But there is money about. She is already committed by Starmer’s diktat to find £57.1bn in defence spending in 2024-25 which is a 4.5 per cent increase in real terms. No cuts there!

A bigger source of revenue would result from taxing wealth at the same level as income by raising the capital gains and dividend tax rates to the level at which workers pay on their wages.

An even bigger windfall would result from a socialist economy in which all rents, interest and profits arising from human economic activity were held in common rather than being privately acquired.