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October Budget Report Card 2024

Budget Politics and Government

October 30, 2024

The reality of the situation is that this budget wasn’t enough to meet the demands of any of the crises we face. It could have challenged our unequal system and properly funded public services, allowed people and communities to thrive, and built the greener, more equal future that we all want to see. It didn’t. Every budget is a choice whether to engage with the reality of the crises we’re in or to stick within what our political system considers reasonable and, within that frame, we welcome the progress it does make on investing in our future. But we need serious structural change to face inequality.

This budget is regarded as a last best chance for the new Labour government to define itself after a period of perceived drift. Much of the narrative pushed by the government since the election in July has been about the UK’s financial constraints and what they claim is a lack of money, with the Treasury itself and Chancellor Rachel Reeves focusing on spending cuts and constraints on other departments.

What’s also notable about this time is the furious lobbying that has played out across the pages of newspapers, in expense-paid summits held by banks, and tickets to exclusive meetings with ministers. This is what happens when inequality of power is left unchallenged: wealth and access allow people to influence an elected government’s first budget, while nobody being left cold or without necessary support by benefit cuts was consulted at all. 

This is a huge missed opportunity – although there may be political reasons to push a narrative around the previous government leaving finances in a poor state, political narrative should not dictate economic reality. In reality, our society is trapped in entrenched crises of climate, housing, health, cost of living, and inequality. Investing in people and planet is the only way to make progress, and we will assess Reeves’ budget on that 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. If this continues – and recent research indicates the wealth gap is still growing – the richest 200 families in the UK will soon have more wealth than the UK’s entire economy.

This has been led by political choices to allow the ultra-rich to profit at our expense. Larger and larger sections of the UK have been given over to the finance sector and financialised corporations, making enormous profits for the already wealthy. You don’t need to look hard to find examples, from the UK’s endless housing crisis driven by asset price inflation, to the £72bn given to shareholders in privatised water companies, paid for taking on £60bn of debt, hiking our bills, and allowing sewage spills. 

This unequal wealth itself encourages inequality, as political power and policy choices become distorted by the influence of the ultra-rich, regional economies are hollowed out to feed financial centres, and communities become more divided. 

Therefore, urgent action on wealth inequality is needed. 

We, and many other groups, have called for a form of wealth tax. £60bn 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 the banks, oil and gas companies, and energy companies that have enjoyed record profits at our expense could 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. 

Some small moves towards a more equal system for the ultra-rich and the rest of us come in a pledge to increase funding to HMRC, hiring 5,000 new staff. Losing 1,350 new staff during Covid allowed £9bn to escape taxation, principally from the richest. Weakening HMRC has always allowed the wealthiest to reduce their tax bills; increasing its resources is necessary to make the ultra-rich pay their fair share.

Investing in People

Social security cuts

Reeves inherited plans to cut £1.3bn from benefits for people with disabilities, something that will leave nearly half a million people losing up to £5,000 a year. On top of that, she’s chosen to also continue with plans to cut £3bn of benefits from people on long-term sickness benefits and scrap Work Capability Assessments. These plans to raise £4.3bn by “cracking down” on welfare are divisive, cruel, and counterproductive.

There is a deep inequality in how people are excluded from workplaces and from wider society due to disability, socio-economic status, visa status, or age. It’s true that ill health and disability are rising (itself heavily influenced by the UK’s inequality) and that brings with it rising costs for benefits. However, impoverishing people with disabilities or chronic illnesses is a terrible way to react to that problem. It will harm a lot of people’s lives, with significant consequences for the rest of society – and it’s far from clear how these cuts are supposed to encourage people into the workforce. Punishing people for not working should not be the goal of any government. 

Guarantee essentials

Similarly, the overall rate of Universal Credit is now at its lowest-ever level as a proportion of average earnings, with 5 in 6 households on Universal Credit going without essentials for life. This would pay dividends societally and financially – poverty is expensive for a state thanks to the poor health, education, and mobility it causes. This and other policies that cause poverty, like the two-child limit, could be undone by this budget, saving the Treasury billions in the long run at the cost of making society better. We found an annual cost of £106.2 billion compared to the OECD average over just four key metrics; the true cost will be much higher.

There is a stark disparity between the logic applied by this budget to benefit recipients and the ultra-rich. While the richest have been allowed to influence the aspects of the budget affecting them and given tax breaks that they claim will encourage them, benefit recipients have been blamed for the expenditure on them. Ahead of the Budget, politicians have focused on the expense of providing housing benefits, NHS care, or disability benefits to people out of work, and have threatened further sanctions or radical interventions in their lives. This massive inequality threatens further damage to the UK’s social fabric and democracy.

Health, education, wellbeing

Experts, campaigners,  and the public are united on the need to invest a lot more in public services. This Budget acknowledges, many times, that public services are in crisis, but is not providing enough to make a serious difference to them.

The NHS has been systematically underfunded since 2010. Although headline spending has increased, allowing governments to claim that they are putting “record funding” into the NHS, spending has consistently risen slower than needed to to keep pace with increasing demand. The result is that the NHS has been forced into effective cuts to care, make increasing demands of underpaid staff, cannot repair buildings, and has seen rapidly growing waiting lists. The underfunding has also prevented long-term investment that would save money over the long term and has led to a productivity problem.

In this Budget, a 3.8% funding increase for day-to-day services has been announced, which is higher than the 1955-2022 average increase of 3.6%. The government expects this to provide 40,000 more appointments a week. This is a necessary increase in funding, considering the waiting list of 7.6 million, to keep the NHS functioning on a day-to-day basis. However, it is not enough to make much progress on the deep crisis facing the NHS. The maintenance backlog alone, according to the King’s Fund, is £13.8bn, dwarfing today’s increase in the capital investment budget.

Schools face a similar crisis in crumbling buildings, decades of underinvestment, and pressures to cut staff or staff salaries. An extra £6.7bn for capital investment in schools has been announced, including £1.4bn for repairs. This is less than the £4.4bn a year needed according to estimates by teaching unions, but  represents a large real-terms funding increase. Social care and local government budgets fared less well, with only token funding increases that will be rapidly swallowed by rising demand. Much more progress is needed here.

Children and young people 

Last year’s budget included a focus on childcare, something sorely needed. Years of underinvestment has left the UK’s early education and childcare spending the second-lowest in the OECD figure at less than 0.1% of our GDP. This results in high childcare costs, a massive barrier to inclusion in the workforce and society, with the burden principally falling on women. That budget made £4bn available, but that amount was agreed to be much less than was needed to create a working childcare system. This budget protects early years spending from cuts, which is welcome, but does not try to tackle the larger problem.

Bus fares

Bus fares for single tickets had been capped at £2; this budget increases the cap to £3 for singles, or from £4 to £6 for returns. Although many bus systems in the UK are regulated by local governments or mayors, who often have their own fare caps, this will hit many in rural areas in particular. The fares cap had led to a 20% increase in passenger journeys and delivered 70-91p of social benefits per pound spent according to the department for transport. Increasing bus fares will raise a tiny amount of money for the Treasury, but will have a deep impact on many people.

Minimum wage

The National Minimum Wage will increase to £12.21 an hour, a 6.7% increase. This is rise roughly in line with previous rises, despite a change to the Low Pay Commission’s remit to consider the cost of living when calculating the minimum wage. However, it does end a decade-long trend of the minimum wage rising faster than average pay growth.

For 18-20 year olds, their lower minimum will increase by 16%, from £8.60 to £10 an hour. The government has said it is looking to end the age discrimination in minimum wage rates by removing the age bands, but the Low Pay Commission has decided to do this by narrowing the gap with a larger increase for young people year-by-year. This phased-in approach requires monitoring to ensure that it actually results in an end to age banding for the minimum age.

Building an Equal Future

Infrastructure investment

The UK’s public investment spending, as a share of GDP, has been lower than the OECD median for a long time, something many economists are blaming for the UK’s poor economic productivity and the lack of key infrastructure outside London and the South East. Labour inherited plans to cut public investment enormously over the next decade, cutting around £24bn over that period. 

Before the budget, a 10-year investment plan was announced: a sensible move for a country used to a volatile government preventing anything getting done. However, Reeves also moved to rapidly cancel several infrastructure projects in a volatile manner after the July election, claiming that the projects were unfunded, and regional leaders have struggled to preserve projects in their area in the period between the election and the budget. Pairing a 10-year investment plan with volatile cancellations-and-sparings of infrastructure projects may make it harder to believe.

Privatised utilities

The UK’s privatised utilities have been a notable failure over the last decade, especially the world’s only fully privatised water system in England and Wales. Energy companies were able to rack up record profits over the cost-of-living crisis through our record bills, while water companies paid out nearly £73bn in dividends to shareholders by putting their companies in enormous levels of debt and under-investing in infrastructure. The resulting sewage dumping, leaks, failing companies and attempts to further hike our bills is not a bug in the system: it is the system. The minimum rational response is to nationalise the water system.

This budget does not address this issue, and it’s concerning that the Labour Party has claimed it would be too expensive to do this using dubious analysis given to them by, you guessed it, privatised water companies. Again, lobbying and unequal access to power has prevented this government working for a public good.

Housing investment

A pledge to invest an extra £500m in social housing is welcome, but it’s important to note how small that investment is compared to the scale of the housing crisis. The government expects this to add 5000 social homes. There are 68,807 homeless households in London alone. Research from Shelter and the National Housing Federation (NHF) found that the government could add £52.1bn to the economy (including £12bn of profit to the government) , paying back the initial investment in homes in only 11 years – if the government built 90,000 social homes a year. This is the same amount of social housing the New Economics Foundation calculated would be required to hit the government’s 1.5 million home target. Clearly, building 5000 social homes is not going to cut it. 

There’s also the context of how social housing stock has been enormously reduced over the last decade: 94,000 social homes were built, more than 58,000 demolished, and 212,000 sold off into the private sector under right-to-buy.

That massive loss of social homes is why it was a good decision to sharply reduce the discount available through right-to-buy from 70% to 25%. However, while this will slow the loss of social housing a little, we’re still looking at a large net-loss of social homes during a housing crisis over the coming 5 years. Some good news, however, £3.4bn for Warm Homes Plan and £1bn for cladding remediation, both of which are welcome steps (if, like many other areas of the budget, much less than experts believe is needed).

The housing crisis is a deeply unequal one, and one that acts as a multiplier for so many other inequalities of class, race, background, health, location in the UK and more. Government after government has set lofty housebuilding targets to try to face it: all have failed. It looks like this government, adopting the same approach, will get the same results. 

Expanding the National Wealth Fund

The National Wealth Fund proposal replaced Labour’s pledge to spend £28bn a year on green investment, and is notable for being a much, much smaller spending proposal of £7.3bn, once. It’s also not a national wealth fund, despite the name. Instead, it’s a rebranded and repositioned UK Infrastructure Bank with a larger remit to invest in strategic priorities (sovereign wealth funds are state-owned investment funds that usually invest globally for profit; the National Wealth Fund is a bank that loans to private investors for specific goals). 

The announced investments of the National Wealth Fund mostly focus on industrial expansion, comprising funding for ports, “gigafactories” for electric vehicles, clean steel, green hydrogen and carbon capture and storage. These investments seem worryingly speculative. The stated goal of the National Wealth Fund is to mobilise a lot of private investment to match the public investment but, in pursuit of that, the funding decisions have chosen deeply questionable ideas like the totally unproven carbon capture or the unrealistic and polluting “green” hydrogen. There was, in fact, an enormous hydrogen stand at the Labour conference this year. Few experts planning how to spend £7.3bn to best combat the climate crisis would have chosen any of these options.

What is needed is a plan to build wealth in communities and real investment in a green new deal. Current plans are too open to lobbyists winning government handouts for their industry, and will do too little to build public wealth.

Participation and Democracy

Lobbying and access

As we approached the Budget, lobbying reached a fever pitch as the ultra-wealthy tried to defend or even expand their tax loopholes. Barclays, HSBC, and Lloyds Bank agreed to pay £175,000 to sponsor a “summit” between themselves and Rachel Reeves in order to argue against taxing the rich, while Labour’s business team offered £30,000 roundtables over breakfast to corporations. A large government investment in carbon capture and storage – a technology that is dubious at best – was preceded by 16 meetings with the Carbon Capture and Storage Association (CCSA). And of course, there’s a lot of precedent in the UK government for this kind of strange association, from the Covid protective equipment scandal to Conservative leadership candidate Robert Jenrick’s unlawful planning decision taken after a £12,000 donation.

The lobbying doesn’t just focus on MPs, either. Advisors to the ultra-rich popped up all over the media to say, often entirely unchallenged, that attempts to tax the rich will end in disaster. In the Financial Times, for example, non-doms say they’ll definitely leave the country if they’re taxed, despite numerous studies finding that’s unlikely and didn’t happen in other countries. Despite these attempts, plans to begin taxing non-doms and close some loopholes stayed in the budget, although the devil is in the details: the way these are implemented is everything, and will be another contested site.

This indicates a deep structural weakness in the UK’s democracy. If manifesto pledges like taxing non-doms cannot be implemented without being changed by the unelected rich, all UK governments will struggle to get anything done. But on the other side of the coin, people who rely on benefit payments were not given the opportunity to speak to government officials about whether planned austerity measures will push them into poverty.

We need to expand the way policy is made out of Westminster and politicians. Participatory processes need to play a much larger role. This could start with simply consulting with people about their lives and needs, allowing them to describe the structural inequalities they face in their own words and using this to inform policy making. But there should also be a growing role for ideas like Citizens Assemblies or participatory budgeting that give people real power to decide the future of the communities they live in.

Devolution

Although local government budgets saw funding increases that were drops in the ocean, devolved administrations in Scotland, Wales, and Northern Ireland recieved real terms increases of £6.6bn, as well as new city deals in Northern Ireland and Scotland. That’s an increase 2.3% for Scotland; 1.3% for Wales and 1.3% in Northern Ireland, although capital funding in Northern Ireland is actual projected to fall 0.3% between 2023/24 and 2025/26. These funding increases for the devolved administrations are welcome, although unlikely to produce a radical change in finances for the governments in Edinburgh, Cardiff, or Belfast.

Finance and Tax Changes

Debt and fiscal rules

Fiscal rules are artificial, somewhat arbitrary rules made up by politicians and applied to the Treasury. Changing the formula by which they’re calculated to allow for investment is good policy – and media outlets choosing to report on this change by invoking “fears of rising debt” are perpetuating bad economics. This is the logic that fed austerity politics, which we know massively undermined the UK after the financial crisis, making us all poorer, unhealthier, and unhappier.

However, having to amend a made-up bad rule in order to allow obviously good policies like investing should indicate that a rethink of the whole idea of fiscal rules is needed – especially when the fiscal rules have been changed more times than almost any other OECD country.

That said, changing the fiscal rules this way is a good move. Debt rarely exists in a vacuum – when you pay to build or buy something, you gain an asset. Investing in something that saves costs or generates revenue will pay for itself over time. However, our fiscal rules too often treated debt like the money just evaporates after use, preventing borrowing to invest. Even international entities like the IMF, who were responsible for much of the worldwide austerity drive after the financial crisis in the late 2000s, now recognise that allowing more borrowing to invest is good policy. Reeves’ change is to take into account the value of financial assets in the calculation, opening up around £50bn of extra headroom. It could go further by looking at the total net worth of all public assets, something that would also encourage a much needed focus on public wealth and allow the levels of investment experts say we need, especially for the climate crisis or ideas like the National Wealth Fund. However, they could have easily done less.

Capital gains tax

Margaret Thatcher’s Chancellor Nigel Lawson observed the problem with capital gains tax being lower than income tax back in 1988. Taxing income from wealth at a lower rate than income from work is an obvious structural inequality; someone with an income of £50,000 from their wealth saves £5,480 in tax compared to someone who has to work for an income of £50,000. It also opens up a huge number of loopholes, like the incentive for self-employed people to incorporate and take the exact same income through the capital gains tax regime. As the IPPR have shown, there’s never been a good reason for capital gains tax to be so low: it’s a tax handout to people who own high-value assets, and rewards people who do nothing but allow their wealth to increase.

The Budget chooses to raise £2.5bn of revenue from the richest by raising the basic rate of capital gains tax from 10% to 18% and the higher rate to 24%. It’s good that capital gains tax has been raised, but leaving it set lower than income tax leaves the structural inequality in place. Even a larger rise should have been on the table: this still leaves capital gains tax the lowest in the G7 and lower than it was in 2016. It also raises further questions about the political choices being made here: why choose to take money off the disabled and most vulnerable through benefit cuts while the passive income of the richest is being left on the table?

Non-doms and other taxes

One of Labour’s manifesto pledges was to raise a significant amount of money from changing the non-dom tax regime and closing other loopholes, like the carried interest loophole, that allowed the richest to avoid paying their fair share of tax. This attracted heavy lobbying from the financial services industry in particular, but they survived in this budget.

The UK’s tax regime for overseas income is much weaker than comparable countries like the US, France, or Germany, and allows for much more tax avoidance. Significantly, studies have indicated that although allowing the super-rich the chance to avoid more tax in the UK may attract some here, it doesn’t really benefit the UK much, since they tend to invest abroad and then use the non-dom regime to not pay tax on that income, so they make little to no contribution to the UK economy. You might conclude from these things that moving ahead with the plans to change the non-dom regime is no brainer, and indeed the previous Conservative government did launch their own plans shortly before the election.

Other moves, like re-committing to plans to charge VAT on private school fees and tighten loopholes in inheritance tax that benefit the wealthiest, are welcome.