AS a modern-day Aesop’s Fable might put it, Chancellor Rachel Reeves has laboured mightily and brought forth a mouse. With a majority of around 156 MPs at Westminster, her Budget on Wednesday missed a golden opportunity to begin fixing Britain’s big social and economic problems.

These include 14 million people in poverty (including four million children); six million patients on hospital waiting lists; 1,290,000 people and families on housing waiting lists; and public services run down or privatised.

Led by the Tories and their right-wing press, much of the public debate before, during and after Budget day focused on Labour’s plans to increase employers’ National Insurance contributions (NICs).

The Budget announced around £25 billion in extra public spending this year and £70bn on average every year to 2029-30, to be funded half from taxation and half from increased borrowing.

Two-thirds (£25bn a year) of the extra tax revenue is due to come from employers’ NICs.

Did this policy break Labour’s manifesto pledge not to raise direct taxation (income tax and NI) on “working people?” Furthermore, the Tories and the media asked disingenuously, just who are — or are not — “working people?”

Prime Minister Keir Starmer and his spokespersons floundered around in their search for an opaque yet all-purpose definition. At the root of their dilemma was a refusal to use the term “working class” even when appealing directly to workers — past, present or unemployed — and their families for votes.

“Working people” is more in tune with Labour’s illusory claim to be both the “party of business” and the “party of labour.”

Many of the self-employed and employers also do a day’s work and, in that literal sense, can rightfully claim to be “working people.” But the reality of the class system is that if they employ other working people, they are not in the same class — and so do not share the same basic class interests — as those who are employed.

Class realities

This is the reality denied — at least in public — by Starmer and the Labour Party leadership. They have no intention of mobilising or leading the working class in a struggle against the capitalist class and its system.

Yet the Budget acknowledges the reality of a class-divided society by pursuing one policy for employers and companies (increasing their NIC rates); another for self-employed small employers (expanding their exemptions); and a different one for workers (keeping the Tory freeze on their NIC rates until 2028).

The Labour government’s decision to raise an extra £25bn a year from employers’ NICs has prompted claims that this will discourage job creation. The “cry wolf” fable comes to mind when we recall the dire predictions of mass bankruptcies and unemployment in the late 1990s when the national minimum wage was introduced.

Nonetheless, some companies may be reluctant to employ extra workers, although — helped by the absence of any real price controls — most will simply pass on the extra NIC costs to their customers. They may also be anxious to take on the extra work and profits offered by more and lucrative government contracts (and take up Chancellor Reeves’s suggestion to small businesses: hire three new workers at no more than the minimum wage in order to qualify for NIC relief).

Fears have also been expressed that the NIC rises could depress wage levels, with bosses looking to save money by demanding lower pay settlements. All the more reason, then, for workers to be in a trade union and fight for higher pay.

In any event, Labour held to its manifesto pledge not to increase rates of income tax, National Insurance or VAT on working people, while also confirming a significant hike in statutory minimum wage levels and a step towards abolishing the discriminatory lower level for young workers.

Capital gains

Of course, the NIC increase is part of a bigger package to increase the annual tax take by about £36bn, including an extra £1.5bn in capital gains tax (CGT) and, from 2026, a puny £1.4bn more from inheritance tax and £3.2bn from phasing out “non-dom” tax relief.

Much has been made in the media about profit being a necessary reward for “investors” without who, presumably, we would all perish.

Only 360,000 people in any one year make a big enough financial killing from an asset sale to pay CGT. That’s less than 1 per cent of the population.

Most payers are relieved that the CGT tax rises were not bigger. Although the higher rate has risen to 24 per cent, this is still well below the top rate of income tax at 40 per cent, enabling the tax avoidance fiddle — sorry, “arbitrage” — between the two to continue.

The Chancellor also accommodated another concern of Britain’s rich: the sale of second homes will remain exempt from CGT.

Extra money for the NHS (£27bn over the next two years), schools, housing, some council services and green energy is badly needed, although a host of organisations have pointed out that the increases fall far short of the funds required to repair the damage done by 14 years of austerity.

Extra investment of around £144bn over the next five years will also stimulate job creation, although the total capital spend is still due to fall towards the end of the decade.

But a lot of this money will go straight into the coffers of private contractors and property developers. Much of this will be funded by state borrowing in the City of London bond markets, together with private capital bribed to participate in a £70bn national wealth fund.

We are already paying bondholders £105bn this year in debt interest — 8 per cent of all government spending — and this will now exceed £122bn by the end of the decade.

Despite early jitters, the City traders have broadly welcomed the prospect of making more profits from Labour’s feeble, short-term attempt to address some of society’s needs.

The Chancellor’s plans have been drawn up in close consultation with the Bank of England and the financial Establishment. Hence, the absence of a wealth tax or any increase in the top rate of income tax, the freeze on corporation tax and the failure to go much further on reforms to inheritance tax and CGT.

And unlike the Truss-Kwarteng calamity in September 2022, the government’s current spending programme is more-or-less adequately funded, albeit with a wishful dependence on economic growth to generate more tax revenues.

After a Budget boost to 2 per cent next year, economic growth is forecast to fall below that level over the following four years.

War dividend

Military expenditure will be exempt from the likely tightening of public purse strings later this decade. Reeves committed an additional £3bn or so for 2025, plus £3bn a year for the Ukraine war “for as long as it takes.”

Britain’s armaments bill will exceed the Nato standard of 2 per cent of GDP as it heads towards the government’s target of 2.5 per cent. If this is reached in 2029, the Office for Budget Responsibility reckons it will cost an extra £10bn at least.

How much will be blown on Britain’s nuclear rearmament drive is unclear. The programme for four new submarines and 60-80 additional warheads is going ahead, and there is every reason to believe that the official cost estimate of £41bn will — on past form — double or treble.

Whatever the cost, these inhuman weapons would not save our towns, cities, ports and an estimated 29 million citizens from total destruction in a nuclear war.

Meanwhile, British overseas development aid will remain at 0.5 per cent of gross national income (GDP plus income generated abroad) throughout the decade. Reverting to its pre-Tory level of 0.7 per cent annually, in line with the UN target, would require an extra £4bn.

Back to austerity?

Bourgeois economic theory defines “austerity” as a set of policies intended to reduce Budget deficits.

It’s an elastic definition because Budget deficits can be consolidated into longer-term debt; seasonal or cyclical factors can be taken into account; and Budgets for, say, a five and even six-year period (as in Britain) can encompass annual estimates and targets within which deficits can both decrease and increase.

Deficits can also be measured and compared in real cash terms and as a proportion of GDP.

Moreover, they can be reduced by progressive as well as reactionary measures when it comes to raising taxes or cutting public expenditure.

Since the 1970s, public debate and policy have been dominated in Britain and other developed capitalist economies by monetarist theory and practice: by cutting taxes on high incomes, capital, profits and property, mostly to the benefit of the capitalist class; raising taxes on spending (notably VAT and excise duties) which disproportionately hit the working class; and reducing public expenditure on social and welfare programmes while prioritising the needs of the forces and institutions of state power.

What of this month’s Budget?

According to the OBR analysis, it adds an average of £9bn each year to the Budget deficit up to 2030, thereby slowing — but not reversing — the last Tory government’s reduction and borrowing plans. The additional tax burden falls more heavily on the rich. Most public spending programmes will expand in real terms, at least for the next two years.

After that, the proposed increases are thinner and part of a scenario surrounded by risks that affect tax revenues, private sector investment, productivity, interest rates, prices and living standards.

Not surprisingly, therefore, the OBR estimates that household disposable income will increase a little for the next two years, thanks to the Budget but mainly to this year’s wage settlements. But then its slow growth — less than 1 per cent a year — threatens to shudder to a halt.

It may not be an austerity Budget, at least for a while. But nor does it protect the working class from more austerity soon after that.

Part two will consider the question of what a “workers’ Budget” might look like.