Although briefed and assessed by much of the press as a “cautious” budget after the chaotic Truss era, every budget is an opportunity for the UK to take serious action on the crises hurting our society: climate, housing, health, cost of living, and inequality.
Every missed opportunity to create a more equal society only entrenches these problems. We will assess Hunt’s budget on this criteria.
Action on Toxic Wealth Inequality
Over the last three decades, wealth held by the UK’s richest has exploded. This is especially true for the UK’s ultra-rich; billionaire numbers and holdings have risen dramatically. As this has happened, the share of the UK’s wealth held by the top 10% of UK households has consistently increased, from 51.4% in 1990 to 57.1% in 2021.
This has been a key driver of the UK’s rising inequality, and consequently the UK’s poorer social, economic and health outcomes than more equal societies. Much of this toxic wealth concentration was created by financialisation – the increasing size and importance of the finance sector in our economy – which allowed enormous profits to be made. Much of this profit was made through asset price inflation, which is a big factor in the UK’s endless housing crisis, and through diverting money from wages and investment to shareholder dividends.
These methods of wealth acquisition are, of course, not open to those without wealth. Unequal concentration of wealth specifically also has been shown to have several negative impacts on society, including distorting political power and policy choices, encouraging unbalanced regional economies, and creating sharply polarised cities and towns.
Therefore, urgent action on wealth inequality is needed.
We, and many other groups, have called for a form of wealth tax. £37bn a year could be raised through closing loopholes and putting a 1% tax on assets over £10m, according to Tax Justice, while the Wealth Tax Commission found that a one-off tax could raise £41bn. Windfall taxes on companies profiteering from the cost-of-living crisis, especially oil and gas companies, would go some way to compensating for the massive extraction of wealth from the UK’s bill payers to the wealthiest. Reform of the financial sector and corporate ownership would help fight further increases in wealth inequality, and adopting a community wealth-building approach would start building a more structurally equal economy.
Disappointingly, the Chancellor and Prime Minister have indicated they have no plans to do any of this.
Cost of Living Crisis
The cost of living crisis’ impact has been deeply unequal. Energy companies have reaped record profits and CEO pay surged by 39%, yet workers are urged to take real-terms pay cuts.
And it’s the most vulnerable households who have been worst hit. The cut to Universal Credit in 2021 affected almost 6 million people, and left many extremely exposed to the rapid increases in the price of everyday goods, services, and bills.
For the richest, however, this has been an opportunity for profiteering. Research by Unite found massive increases in corporate profit, including doubling of profits for the big supermarkets and soaring increases for food manufacturers; profits for freight and logistics companies increasing from £5.8bn to £174bn in three years; and of course, huge profits for oil and gas companies. Overall FTSE 350 profit margins grew by 89% from 2019 to 2022. This is accompanied by a massive increase in CEO pay and bonuses, resulting in a very good year for the UK’s highest paid.
The government’s actions, in this context, have not gone far enough. Cost of living support payments have subsidised some of the UK’s poorer households (although many of the poorest households missed out on them) and prevented some of the rise in inequality, and the energy price guarantee continuing is welcome. Plans to end the pre-payment metre premium will end a deeply unjust punishment of the poorest with higher energy bills. However, overall support has been inadequate, and millions of people have been pushed into poverty.
Pay will continue to be too low, and the refusal to meet reasonable demands for pay increases and proper service funding by much of the public sector will cause much damage, although the ambition for the National Living Wage to reach two-thirds of the median wage by 2024 is welcome. No action on gender, ethnicity and disability pay gaps will allow unequal pay to continue for hundreds of years at the current rate of progress.
There has been no action on many of the key drivers of poverty and inequality, including soaring rents or benefit cuts. We’ve called for a fair social security safety net with adequate and accessible benefits, including migrants with No Recourse to Public Funds and in line with inflation and living costs.
There has been no appetite to change the structural inequalities that meant the UK was the worst affected advanced economy, or to prevent similar crises in the future.
Finance and Tax Changes
That Hunt has resisted the numerous calls to cut taxes for the richest is welcome. Evidence strongly indicates that would have led to increases in inequality, falls in government revenue, and no increase in economic growth. However, changes to pension allowances, part of the government’s stated goal of keeping people in the workforce, are a huge giveaway to the richest. Only 41,000 people exceeded the pension saving allowance in 2020/2021, and only 9,000 hit the to-be-abolished lifetime allowance, although numbers are increasing. This small group of high earners will benefit the most from the change, while the majority who struggle to save enough in their pension for retirement will not benefit at all.
The overall impact of this budget’s tax changes will mean a £650 hit to a typical household’s income and a £1,500 hit for the richest fifth of households, according to the Resolution Foundation. This is created by the freeze in personal tax threshold changes and the cut to the additional rate of income tax threshold, and represents a minor reduction in post-tax income inequality.
The drop in inflation and in energy wholesale costs are responsible for much of the good news headlines around this budget, although households will still feel worse off in the coming year. The OBR forecasts a drop in household disposable income is set to fall by almost 6%, the largest drop on record.
The rise in corporation tax to 25% is welcome, but not enough. Corporation tax will remain the lowest in the G7, and even just returning the rate to where it was in 2012 would raise around £19bn. Tax avoidance, and the UK’s role as a tax haven, must be tackled; the National Crime Agency believe that the true figure for illicit money being laundered through the UK is in the tens or hundreds of billions of pounds.
Creating a Strong, Equal Economy
The UK’s economic growth and incomes for UK citizens are being held back by the UK’s inequality crisis. Inequality has been shown to encourage instability and crises, encourage debt, and lower economic growth. The IMF, itself historically an advocate for the policies that have created the UK’s inequality crisis, has now acknowledged that inequality reduces GDP growth and creates instability.
This has had a dramatic impact on people in the UK. Incomes in France grew in a decade by 34% and in Germany by 27%, while typical UK income dropped by 2%, according to the Resolution Foundation. Income inequality and regional inequality have increased, and an overreliance on financialisation has concentrated wealth into the finance sector and small areas of London.
Unfortunately, this budget does not address these structural issues in the UK economy.
The UK’s business investment rate is the lowest in the G7, at only 10%, so plans to increase business investment through an investment allowance (for three years) are a sensible goal, although even at the most optimistic projections the UK’s investment rate will still be below the G7 average. Plans to invest in tech hubs around universities, carbon capture and storage, and some nuclear projects are positive individual projects, but are a long way from the shift in economic strategy necessary for the climate or cost of inequality crises. Other plans, like investment zones, amount to gimmicks.
Economists and business have said many times that the key thing preventing investment is the lack of long-term planning, which this budget fails to introduce. As a result, the UK’s rate of business investment is the lowest in the G7. This lack of strategic planning also prevents action on the inequalities holding our economy back.
The financial sector, which has driven many of the shifts highlighted here, is in dire need of reform aimed at diverting it away from the short term thinking and extractivist practices which have stunted the economy and driven inequality.
This budget’s stated focus on including people in the workforce is a good one, but the high ambitions are not matched by good policy. The emphasis on inclusion at work specifically misses much of the drivers of unequal inclusion in the UK.
The UK’s high cost of childcare is due to a lack of investment; the UK’s early education and childcare amounts to less than 0.1% of our GDP, the second-lowest OECD figure. This presents a huge barrier to inclusion in the workforce, which principally falls on women.
The £4bn investment into childcare, intended to provide 30 hours a week to under-threes, is a welcome move. Previous attempts to provide entitlement to childcare did not create enough places for that entitlement to be used. Only 13% of parents are claiming support under the existing schemes, and government subsidy rates have often run well under the actual cost of childcare in areas of high demand. This move may run into similar issues, with the Sutton Trust warning this may not be enough money for childcare providers to survive on – something this budget appears to recognise by changing the ratio of staff to children from 1:4 to 1:5.
Another key focus of the budget was encouraging people into the workforce. This focus is welcome, as the UK’s exclusion of many people due to disability, socio-economic status, visa status, or age has been harmful to our society and economy. Ill health and disability are rising, and overall workforce satisfaction is low – both things that are heavily influenced by inequality.
The announced action to support people back into work with programmes like the health MOT are a good idea. Scrapping the Work Capability Assessments, which has been responsible for much unnecessary cruelty in the system, has been a key demand, but the system that will replace it – the “Universal Support” scheme – is so far unclear. These could represent a change to a more inclusive and preventative system, but will need to be watched closely.
Unfortunately, some of this focus has gone on making our social security system even more punishing for claimants, with the stated goal of getting people back into the workforce. This will not work. Plans to automate and strengthen sanctions, already at record levels, and to pressure work coaches to apply more of them will push more people into poverty.
How Could An Equality Budget Help?
We know that more equal societies work better for everyone. There’s a very strong body of evidence that equality is correlated with better education and health outcomes, lower crime, increased social mobility, and a happier society.
It’s also very clear that the UK’s inequality is damaging our economy. Our growth, stability, and wages are being damaged by our massive concentration of wealth and power in the hands of very few.
Introducing taxes on wealth, a long-term strategy to build community wealth, services that are properly funded and responsive to our needs, and a divestment of power to the public are all needed from future budgets, and would hugely improve the UK’s society and economy.
This article was first published on the Equality Trust’s website.