International Communist Party

Britain’s Ruling Class Knows Economic Collapse Is Coming – And Is Preparing For Confrontation

Categories: Britain, Europe, UK

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Whether it was done for ideological reasons or out of pure cynicism is neither here nor there. The British ruling class knows that a deep recession is virtually unavoidable and used a “fiscal event” to shift as much wealth as possible from the working classes to the ultra-rich before a complete economic collapse happens. “Fiscal event”, the Tory government called it, because a “budget” is always accompanied by impact analysis by the Office of Budget Responsibility (OBR). And if the OBR had run the figures through its computers, it would have totally undermined the government’s rhetoric that the measures would promote the “economic growth” needed to pay for the massive tax cuts, reduce the national debt and pay for investment in infrastructure and the health service.

Politically, the replacement of Prime Minister Boris Johnson by Liz Truss and her new Chancellor Kwasi Kwarteng allowed the bourgeoisie to present this as a “change of direction” even though the Tory Party has been in power for 12 years.

The bourgeoisie knows the truth

Independent forecasts, such as the one published a day after the “fiscal event” by the Institute of Fiscal Studies indicate that only those on an annual income above £155,000 will benefit overall from the tax cuts – and that’s just the richest 1% of the UK population.

The financial markets delivered an immediate verdict on the claim that the “fiscal event” would deliver growth: the FTSE tanked, the pound sterling lost 3% of its value in a single day, hitting its lowest level against the dollar since 1985, around $1.03. There were suggestions that friends of the government, who had been tipped off on the coming announcement, had “shorted” the pound – in other words, sold sterling in the knowledge that they would be able to buy it back at a lower price shortly afterwards. Consequently the pound recovered slightly on Monday, October 26.

Perhaps more tellingly from a long-term perspective, the yield on UK 10-year gilts (government bonds) soared to more than 4%, an increase of well in excess of 300% over the past 12 months. The yield on gilts tends to rise sharply in inverse relation to the country’s economic prospects (and this in turn increases the interest paid on the national debt) as investors lose confidence in its ability to repay the national debt. Some financial capitalists very openly brag about the money they are making. Multimillionaire (and Tory party donor) Crispin Odey said that his bets against Britain’s government bonds were “the gifts that keep on giving”.

The Financial Times ran with the headlines, “Pound tumbles below $1.09 after UK’s £45bn tax cut package” and “UK bonds in historic sell-off after Britain takes tax cut ‘gamble’”. The FT is the newspaper of the bourgeoisie, so it is duty-bound to report the truth. A complete contrast to the UK yellow press, which, below the usual royalist tittle-tattle ridiculously announced, “Tories make radical tax cuts to get Britain booming” (Daily Express) and “Things are looking BRIGHTER! Chancellor to pledge a ‘new era for Britain’ in mini-Budget with biggest tax giveaway in 30 years to spark growth surge” (Daily Mail).

So what’s actually going on?

The main content of the budget is a massive £45 bn tax-cutting package, which, together with other recently announced measures, will add about £400 bn to extra Government borrowing. The top rate of tax, for those paid more that £150,000 per annum, will be reduced from 45p to 40p in the pound. This will be worth more than £55,000 a year to someone on an annual income of £1 million.

To rub salt in the wound, the government also announced the removal of a cap on bankers’ bonuses, in an effort to attract back bankers who have moved abroad in the wake of Brexit. (In reality it is easy to get around the cap, which limits bonuses to twice the annual salary, by simply increasing the annual salary. But the change sent a clear signal to the super-rich.)

The financial services sector got another bonus: the threshold for stamp duties (taxation) on home purchases will rise from £125,000 to £250,000. With the base interest rate raised to 2.25% (and set to rise further, perhaps as high as 6%) mortgage interest will rise significantly, so the reduction in stamp duty will eventually mean a lot more money to be pumped back into the banks via mortgage repayments. (We say eventually, because a short-term effect of the uncertainty is that banks and building societies started withdrawing some mortgage products altogether.)

The theory behind all this is “trickle-down” economics, the fiction that if you give loads of money to the rich, it will eventually reach the poor. Nobody in the ruling class, not even the keenest advocates of this theory, actually believes it. But it provides ideological cover that is trumpeted in the yellow press.

Even the broadcast media have trouble reporting the claim that the budget will deliver growth of 2.5% per annum in a serious and objective manner. Framed by the Houses of Parliament, two BBC commentators became barely audible as the Abba song, ‘’Money, Money, Money, it’s a Rich Man’s world”, boomed out from a protester’s portable speaker. Cut back to the newsroom, where the newsreader acknowledged there had been quite a lot of background noise “although it was not without relevance”.

Other measures are that the proposed rise in National Insurance contributions will be scrapped, and the basic rate of income tax will be reduced from 20% to 19%. These measures might see a few pounds drifting the way of those on low incomes, but they will be more than swallowed up by food and fuel inflation and the increased price of all imported goods.

For people on the very lowest income, the reduction on tax brings no gain whatsoever, as they are below the tax threshold. What’s more, the benefit rules are being further tightened to make it harder for part-time workers on Universal Credit. This benefit will be withdrawn from people working less than 15 hours a week. Claimants will also need to prove they are job hunting, or else be forced, kicking and screaming, into badly paid, or unsuitable, jobs; this is notably the case in the care sector where there is a massive shortage of workers, mainly due to the paltry wages, tough working conditions and the lack of immigrant workers from the EU following Brexit.

Many such jobs are now in the shadowy sector of the “gig economy” where a worker is categorized as ‘self-employed’, freeing their de facto employers from costs such as sick pay. (In the absence of any effective political opposition, the predicament of such workers gets scant attention, limited, for example, to the portrayal of delivery workers in Ken Loach’s most recent film, Sorry we Missed You).

To try and assuage the working classes and petty bourgeoisie, a part of the massive borrowing the Government has agreed to (variously estimated at between £60 and £ 100 bn) will be spent on subsidizing energy costs. However, this will not be financed, as many had hoped, by a windfall tax on the energy companies (who are making money hand-over-fist on sky-high fuel prices). Instead, the subsidy is another addition to national debt, to be paid out of taxation by present and future generations of workers.

Preparing for the class war

Finally, and highly incongruous to find in a budget speech, the transfer of tens of billions to the financial aristocracy was accompanied by a declaration of war on the working class, who are expected to pay the price with the biggest fall in real wages on record.

Chancellor Kwarteng ranted: “At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives. Other European countries have Minimum Service Levels to stop militant trade unions closing down transport networks during strikes. So we will do the same.

“And we will go further. We will legislate to require unions to put pay offers to a member vote, to ensure strikes can only be called once negotiations have genuinely broken down.”

This comes against a background of working-class militancy on a scale unseen since the strike wave of the late seventies and eighties. Members of the Rail, Maritime and Transport union (RMT), Aslef, the Transport Salaried Staffs Association and Unite will strike on Saturday October 1, with further action planned on October 5 and 8. This is significant, as all railway workers including train drivers and office staff will all strike in unison.

Members of the Communications Workers Union (CWU) will strike on 28 September. Criminal law barristers are on an indefinite strike. There is industrial action in the container ports.

Discontent is rife in the National Health Service, too. The Health Secretary announced, on the day before the “fiscal event”, that general practitioner doctors, who already have to meet 72 targets, will now face a 73rd: they must undertake to treat any patient within two weeks, regardless of the urgency of the case. A GP writing in The Guardian reported on the serious shortage of healthcare workers, largely due to the lack of funds: “The NHS faces its worst workforce crisis in history, with 132,000 posts currently vacant, including more than 10,000 doctors and 47,000 nurses. Recent figures from the Health Foundation show a shortage of about 4,200 full-time equivalent GPs.”

On October 3, at the start of the Conservative Party’s annual conference, Kwasi Kwarteng suddenly announced that the headline-grabbing proposal to reduce the top rate of tax was being (temporarily) withdrawn. This was a tactical retreat following opposition from within the Party. Many in the ruling elite felt it was a step too far, too soon, and this had unnerved the financial markets. But this does not mean it is off the agenda, and the tactical retreat provides cover for all the other anti-working class measures.

Be in no doubt, this assault on living standards sticks in the craw not only of active trade unionists and militant workers, and those resisting this law, but broad swathes of the working class. This could well provide a rallying point in the struggle for higher wages to address the steeply rising cost of living. It will also raise class consciousness.

However, the ruling class has an answer to this. The Labour Party is now a “government in waiting”. Waiting for what? To force further austerity on the working class to pay for the crisis, of course.

And this is precisely why the ruling class believes it can get away with the current all-out assault on the proletariat.

Communists regard it as a truism that in order to get elected in a bourgeois democracy, a party must demonstrate to the ruling class that it can be trusted in government. According to The Economist (and reported in The Guardian), the Labour Treasury team “has had about 250 meetings with CEOs of major companies, who are now so eager to talk to the opposition that tickets sold out in July for a business meeting with the shadow cabinet, months ahead.”

The Labour Party is investing money from subscriptions paid by members (who are mostly drawn from the lower middle and working classes) and trade unions (whose membership is working class) to butter up the millionaire elite. There are, of course, some decent, class-conscious individuals in the Labour Party. But they are being sidelined and silenced as the leadership instructs members not to support strikes at all and certainly not to join picket lines. All in an effort to make a Labour government palatable to the bourgeoisie.

The decision of the Labour Party leadership to sing the national anthem, “God Save the King” at its conference, rather than the traditional lukewarm rendition of “The Red Flag” was of more than symbolic significance!

To those involved in the future resistance to the anti-working-class measures in the ”fiscal event”, we say: