Government spending, budget deficits and public debt hangs over political discussion in the UK – from Gordon Brown’s ‘fiscal prudence’, the Con-Dems’ austerity drive, through Theresa May accusing Jeremy Corbyn of wanting a ‘magic money tree’, to public sector workers being told by both Starmer’s Labour and the Tories today that there’s not enough money available to give them a living pay increase. NICK HART reviews a recent contribution to the debate.
Follow the Money: How Much Does Britain Cost?
By Paul Johnson
Published by Abacus, 2023, £25
To pull back the curtain on how the UK government raises and spends its money, Paul Johnson has written Follow The Money. A former government economist, Johnson has for the last 12 years been director of the Institute for Fiscal Studies think tank (IFS).
Founded by a quartet of City money men to lobby post-facto against the introduction of Corporation and Capital Gains tax on businesses and wealthy individuals in the late 1960s, the IFS today describes its mission as “guiding politicians and civil servants in implementing effective economic policies”.
In reality, it plays a dual role. As well as carrying out academic research, through its appearance in the opinion pages of newspapers and provision of talking heads to news channels, think tanks such as the IFS provide cover for the broad approach of capitalist politicians in managing public finances – even if they might sometimes speak out against current policies or advocate for reforms.
This can be seen from the opening pages of Follow The Money, where Johnson establishes his mantra that “there are no easy answers” and “hard choices are everywhere”. Though he later criticises the extent of cuts to public spending under Conservative governments since 2010, the book is premised on the idea that “the discipline of economics and markets creates some constraints”.
As described in The Brutal Class Logic of Austerity (Socialism Today No.268, June 2023), the imposition of austerity and underfunding of public services and infrastructure has as much to do with maintaining and increasing the share of wealth in society flowing to the rich as the need to maintain government spending and debt below the often arbitrary limits touted by capitalist politicians.
Though he claims that “being director of IFS, I can look on with some detachment”, Johnson’s time working in government and a small amount of namedropping of politicians and senior civil servants suggests he may not be as removed from the Westminster bubble as he would like to think. In reality, the ‘independence’ of groups like the IFS simply means that they are not attached to individual cliques of capitalist politicians, instead aiming to take a broader view as to what is the best course of action to ensure the long-term stability and cohesion of British capitalism.
Nonetheless, in its 280 pages Follow The Money provides a beginner’s guide to the history and present day of the taxes and public spending that make up the UK government’s annual trillion-pound budget. Though clearly not written with this in mind, some lucid facts jump out which are of use to socialists, such as how 40% of British adults have an annual income of less than the £12,570 threshold at which income tax starts, or that the top 10% receive 40% of taxable income.
This is accompanied by concise plain-English explanations of some of the inequalities baked into the system, from the ways in which loopholes around inheritance tax benefit those wealthy enough to own assets beyond the house they live in, or how the fact that National Insurance contributions are only payable on wages means that “we pay more tax so that millionaire partners in law firms can pay less”.
The hard facts and figures provided are leavened with a number of anecdotes and examples of how tax and public spending decisions play out in real life. These include the ludicrous, such as the description of how as chancellor, Tory grandee Harold MacMillan described the discovery of the health risks of tobacco as a “very serious issue” due to the potential impact on the public finances from lost tax revenue if smokers quit en masse!
Meanwhile the most poignant section of the book is where it uses real life case studies to describe how “much of the benefits bill, and the bill for health spending, is rooted in economic and social failure” due to income, housing and other material problems being a major factor in two million people currently relying on incapacity benefits.
Though Johnson eloquently describes some of the social problems resulting from income inequality, what is absent from his book is a recognition of class divisions in society, and how struggles over both pay and pensions and the ‘social wage’ of public services and benefits is a product of this.
The fact that the whole book is written in the language of ‘we’ and ‘us’ to describe society as a whole is one of its central shortcomings. Where he says that the unfairness of the current tax system is “our fault too” he then reels off a long list of vested interests that, among other things, lumps in workers with their bosses and renters with their landlords!
Similarly, when discussing the iniquities of the current system of Capital Gains Tax (CGT), Johnson has the nerve to say “does the fault lie with politicians for being weak and cowardly? Or with us voters for punishing any sign of bravery”.
Despite opinion polls showing support for increases in CGT and the introduction of a wealth tax there’s currently no mass party willing to challenge a tax system designed to benefit the ruling class. In fact, as Johnson explains, following Labour’s transformation into an outright party of big business in the nineties, it was Gordon Brown who effectively cut CGT to benefit those who derive their income from sources other than their own work.
And absent from the discussion of the split between taxes levied on wages relative to those on corporate profits is any explanation of where those profits themselves come from. As Marx and Engels first explained, at root under capitalism the profits of any business are derived from paying workers less than the full value of what they produce for their employer, and can therefore be considered a form of unpaid wages.
Under capitalism, the relative amounts of how much the rich and the working class pay towards public services, infrastructure and benefits is not simply a technocratic question of what the government of the day thinks desirable. Rather, it is subject to class struggle. Mass movements of the working class, either through the trade unions or other campaigns, can force a retreat and reversal of austerity policies
While Johnson describes how the decline in pay relative to housing and childcare costs and other essentials over the last half century has led to the majority of those claiming benefits now being in work, he doesn’t talk about what led to a position where having a job no longer guarantees a life free of poverty. During the 1980s the Thatcher government embarked on a series of policies designed to break the strength of the trade union movement, alongside the sell-off of nationalised industries and council housing, contributing to the present situation of lower wages and higher living costs for workers today compared to the 1970s.
Most of the baby boomer generation, today in their sixties and seventies, entered the workforce at a time when British and global capitalism were in the middle of a prolonged boom. Through a willingness to conduct militant trade union struggle, workers were able to win ever improving real wages. These are reflected in the workplace and state pensions now rightly enjoyed by some of those ‘boomers’, which Johnson – born in 1965 – describes as ‘crazy’ and ‘plain unfair’.
A further hint of frustration comes through in the assertion that “(government) often chooses not to do the right thing because it is scared of us voters”. But the fact that what is “the right thing” for one section of society is often bad for another layer goes to show that politics is not just a product of which party can present the best management strategy for ‘Britain PLC’ or of moral values, but of the struggle between competing class interests.
Clearly the £83 billion additional taxes on big business and wealthy individuals proposed by Jeremy Corbyn in Labour’s 2019 manifesto to increase NHS funding, scrap university tuition fees and raise the minimum wage, among other measures would have benefitted working class people at the expense of the rich.
Why then, do big business parties such as the Tories and today’s Keir Starmer-led Labour Party continue to advocate funding public services and benefits at all, if these have to at least partly be funded by taxes on the social base of these parties’ among the wealthy sections of society?
Some of this flows back to them in the form of grants, tax breaks, subsidies and public contracts that amounts to £90 billion a year in ‘corporate welfare’ by some estimates. And as Johnson draws out in the book, it is helpful for businesses to be able to draw on a pool of workers who are healthy and well educated enough to do the tasks required of them, and to not be unavailable for work due to caring for children or elderly and infirm family members – though there are at least 5.7 million people acting as unpaid carers currently in Britain.
However, this doesn’t fully explain the provision of pensions and benefits to those unable to work. Though Follow The Money gives a brief history of the introduction of the evolution of the welfare state, it fails to mention that the first pensions and unemployment benefits were introduced by the Liberal government of Herbert Henry Asquith in 1908 and 1911 respectively following a period of heightened class struggle, coinciding with the political pressure of the emergence of the Labour Party.
Similarly the book glosses over the fact that the British ruling class was forced to accept the massive expansion of welfare, public services and housing in the period following world war two, as to not do so would have risked revolution from a working class scarred by the experience of the Great Depression. Though carried out with the aim of saving British capitalism, these were part of the wider introduction of elements of state planning into the development of housing through new towns and council estates, and in industry through Industrial Development Certificates determining where firms could open new factories, underpinned by the nationalised rail, coal, steel and other industries.
In contrast, Johnson correctly bemoans successive governments’ “pervasive failure to focus on the long or even medium term” during recent decades. This lack of longer term planning reflects the outlook of the ruling class as a whole, with investment by British firms in new equipment, premises and other capital spending declining from a high of 26% in 1974 to 17% today.
Along with the declining mental and physical health of workers due to austerity, this has created a situation where since 2008 the productivity of businesses in the UK, measured in terms of amount produced per hour, has grown at a historically slow rate of 0.5% per year.
The response of the capitalists has been to maintain their profit margins at the expense of investment into their own businesses and in paying taxes – as set by ‘their’ party in government – to fund public services and infrastructure benefiting the wider workforce.
Talking about the task of government budgeting today, Johnson says that “more than a decade of feeble economic growth has made everything harder” and that there are “very real constraints” on the amount of money available to fund services.
However, this highlights another of the book’s blind spots – what happens when, as in most years, the government runs a deficit between its income and expenditure? Governments can borrow money by issuing bonds – effectively fixed term loans – on the financial markets. Contrary to what the coalition government and their media outriders spent the first half of the 2010s arguing, the size of government debt, either in cash terms or relative to total economic output (GDP), does not in and of itself cause a breakdown of public finances.
However, as governments borrow more to fund spending or repay existing bonds, the perceived risk of them defaulting on their debt leads to the bond traders demanding a higher interest rate on any new debt. In this way, the financial markets can act to police the government of the day.
The knock on effects of accelerating inflation and borrowing costs for businesses and individuals was what led the finance capitalists to effectively force a change of government following the budget introduced by the then prime minister Liz Truss and her chancellor Kwasi Kwarteng in Autumn 2022. Which is to say nothing of the pressure that would be applied to a left-led government that attempted to increase public spending to the benefit of the working class.
Modern Monetary Theory has become adopted by some self-described socialists and individuals in the workers’ movement in recent years. They argue that a country with its own currency such as the UK could increase public spending indefinitely by printing money to finance it and using taxes to control inflation.
More widely, it has become popular in left-wing circles in recent years to point to the fact that as the post-war Labour government embarked on the creation of the welfare state, the ratio of debt to GDP peaked at 251%, as against a comparatively modest 96.9% today following the banking bailouts, pandemic relief and energy subsidies, and that there would be no barrier to a left-led government doing likewise today.
The capitalist class were able to stomach a relatively higher level of public spending and taxes while the British economy was growing on average by 2.5% per year from the 1950s to the mid-1970s. However, today the ruling elite in Britain and elsewhere is faced with an economy more and more prone to crisis; as Johnson remarks “worryingly, these shocks seem to be coming round more and more frequently”.
It is workers having to pick up the tab for these crises in falling real wages and cuts to services that has led to the breakdown of trust in politicians not, as the book has it, a simple lack of “understanding of the genuinely difficult decisions politicians have to make”.
If it’s true that “governments can’t magic away global changes and crises that make us poorer”, that’s because these external shocks are part and parcel of the same capitalist system that drives them to try and offload crises onto the backs of the working class.
The political and fiscal obstacles capitalism has placed in the way of working class people getting the funding we need for our services, pensions and infrastructure aren’t a reason to give up and accept permanent austerity. Rather, they’re all the more reason to fight for a system that directly places control of the money in society in the hands of working class people – socialism.