Britain’s Tea Party Budget

Britain’s Tea Party Budget

Michael Harris: Britain’s Tea Party Budget

The government of the United Kingdom’s annual budget is set during a moment of pure political pantomime. While drinking an alcoholic drink, the Chancellor of the Exchequer (akin to the U.S. Secretary of the Treasury) stands in the chamber of the House of Commons and reads out a list of statistics and figures meant to illustrate his command over the nation’s finances. Under the previous Labour government, Chancellor Gordon Brown’s set speech would be a marathon list of additional public spending. Yet times have changed. The fiscal restraint promised at the beginning of Britain’s Conservative and Liberal Democrat coalition government has morphed into a budget that would please grassroots Tea Party activists with huge cuts to welfare to pay for a tax cut for the richest 1 percent of UK earners. The wildest fantasies of the Tea Party movement are being implemented across the Atlantic, in a chilling warning for U.S. progressives.

George Osborne, Britain’s current Chancellor of the Exchequer, leaked almost the entirety of his speech in advance. Even so, the details have been truly shocking. Pensioners, children, and welfare claimants will all be hit to pay for tax breaks for the richest 1 percent. There will be a cut in the top tax rate (on incomes over £150,000, or about $235,000) from 50 percent to 45 percent and big cuts in corporate taxes. Middle-class pensioners will lose nearly $500 a year, and the 18 million people in the UK on some form of welfare (usually lower-income families) will lose $800 each. On average, workers earning $30,000 will lose $300 in welfare, with single parents working up to sixteen hours a week losing a staggering $6,300.

Yet Britain’s millionaire bankers will pocket nearly $70,000 a year each in tax breaks, and the corporate sector will see its tax rate fall from 28 percent to 22 percent by the end of this parliament, 18 percent lower than the United States, 16 percent lower than Japan, 12 percent below France, and 8 percent below Germany. This is the total tax rate; there are no state corporate taxes in the UK.

Before the budget, the coalition’s mantra that we’re all in this together was found to be wanting. The previous budgets redistributed income away from the poorest 10 percent of the population. They lost out more than any other group except the very richest. The graph below was produced before the top tax rate was cut from 50 to 45 percent. With the reduction, it’s likely that the poorest are paying the most for the economic crisis.

The welfare cuts are near fatal to the post-1945 consensus on health care, housing, and benefits for children. In the area I represent, Lewisham in South-East London (a borough with around the population of Stockton, CA), over 9,600 people who rely on rent assistance may have to move homes. People regularly call on me in tears wondering where they will live as their welfare payments are slashed. Public workers who have seen their pay frozen for three years may in certain regions such as the North-East see the freeze extended for another decade until their pay falls below the private sector average. Anger is mounting. Young people tell me they expect last year’s rioting to happen again as youth unemployment stays above 20 percent.

The worry for progressives is that while the majority of Britons are being clobbered to pay for a tax cut for the rich, 58 percent of respondents to a poll before the budget said that the spending cuts were necessary. A significant 36 percent of those polled blamed the previous Labour government for the spending squeeze, not the current government doing the cutting.

In these circumstances, asking corporations and the richest 1 percent to help contribute to Britain’s huge budget deficit is not a big ask. That public polling shows a wariness to do so should send alarm bells ringing in the United States. Democrats need to ask how they can make the case for public spending during the worse crisis since the Great Depression. That case has been lost by progressives in the UK.