Chancellor Jeremy Hunt attempted to salt the earth for Labour in his Spring Budget – stealing the party’s policy on scrapping the so-called non-dom tax status and launching tax cuts the party will struggle to oppose.

The 2p cut to National Insurance contributions, however, is funded by big cuts to departmental spending under the next government, and mysterious “productivity gains” from the public sector. 

Today’s Office for Budget responsibility forecast states that the Budget is based on there being “no real growth in departmental spending per person over the next five years”, with a real cut in many departments’ budgets of 2.3% a year from 2025 to 2026. In other words: most likely when this Government is out of office. 

Cutting public services alongside tax cuts is “a political con trick – giving with one hand while taking with another”, the head of the Trades Union Congress argued.

It’s early days, but Labour has been studiously quiet so far on the plans for future spending cuts. 

TUC General Secretary Paul Nowak said in a statement: “This is a deeply cynical Budget. The Chancellor knows he won’t have to live with the consequences of the savage spending cuts he’s already imposed across large parts of our public services.”

I asked a Labour spokesman what the party thought of the cut to National Insurance contributions. "We supported the NIC cut last year and we will be supporting the NIC cut today," he said.

Labour’s response when reporters asked if it would oppose anything in the Budget was this: “We’re not going to oppose for opposition’s sake. And given that many of the policies seem to come from our own side, we'll obviously be supporting those. But at the moment, there's not a specific measure we would say we oppose."

Now, the language around the budget was of course negative – with Labour branding the non-dom policy shift a “humiliating U-turn”. But it was a U-turn that Labour clearly supported. The party's reaction looks thin, at best, when the facts from the OBR are considered.

According to the OBR's March 2024 Budget analysis, the Government plans “no real growth in departmental spending per person over the next five years. Within this envelope the Government has committed to, among other things, an NHS workforce plan that implies real [spending] growth of 3.6% each year and holding defence spending constant at 2% of GDP, with ambitions to raise it to 2.5% of GDP. Meeting these and other commitments on schools, childcare, and overseas aid spending would imply a real cut in all other departments’ budgets of 2.3% a year from 2025 to 2026.”

To illustrate the scale of the trap, in a normal year under the current Government, departmental expenditure was topped up “by an average of [more than] £32 billion a year” the OBR states. Now the Government is planning cuts of tens of billions per year, mañana. 

Labour chose not to echo the Scottish National Party in its rhetoric – despite it being Labour that’s likely to face the fall-out from the Chancellor’s pledges. The SNP’s economy spokesperson, Drew Hendry MP, said the Government is "cutting public services to the bone" – noting that Jeremy Hunt had “ushered in another decade of austerity cuts at the UK budget”.

The progressive IPPR think tank dubbed it a “slash and crash” Budget, with today’s tax cuts implying “unfeasible and undesirable public spending cuts in the future”. 

Harry Quilter-Pinner, its director of policy and politics, said “no one believes” that future cuts to day-to-day spending are possible, or that squeezing public investment further is sensible. 

“The Government chose to slash taxes today at the expense of crashing public services tomorrow," he added. "With the NHS, pensions, childcare and defence spending likely to be protected, future spending plans imply big cuts across other key public services."

That means areas like education, local councils and the environment are facing further catastrophic cuts.

Health figures themselves – despite NHS budgets being protected – recognise the risks. As the Health Foundation has noted, while some extra cash for the NHS is welcome, “other public services are still likely to take a substantial hit, with the OBR stating that unprotected departments will receive a 2.3% a year real-terms cut in funding from 2025/2026”.

That, in turn, will “leave the wider public services that support good health, including local government, under significant pressure”. 

Dr George Dibb, associate director for economic policy at IPPR, added that almost 50p of every £1 of the Budget will go to the richest fifth of households, with just 3% going to the poorest fifth. 

Of course, it was unsurprising that Labour welcomed reforming the non-dom tax system and higher tax on holiday rentals. A further levy on first-class air travel is also unlikely to be reversed by Keir Starmer's party.

But what of the Chancellor’s cuts to capital gains tax on property wealth or the never-ending freeze on fuel duty? 

Gideon Salutin, senior researcher at the Social Market Foundation think tank, said the continued freeze – which will cost around £5 billion – will “fuel more inequality”. The richest tenth of households in the UK will save an extra £60 a year from the freeze, while the poorest receive only £22. 

It has calculated that the Government has lost £130 billion on cuts and freezes to fuel duty over the past 13 years – while only decreasing the average household’s motoring costs by £13 a month.

“Achieving a more meaningful reduction in transport expenses requires the Government to invest in cheaper, greener alternatives like public transport and electric vehicles, but today’s Budget did little to enhance those options for low income households,” Salutin said.

The Conservatives have, perhaps ironically, left the door open for Labour to scrap the fuel duty freeze. Why? Because much of the Budget’s ‘success’ in meeting Hunt’s fiscal rules stems from the sly accounting wheeze of claiming that fuel duty will rise in future years... a stark contrast to the decade-plus of constant freezes. 

But for all the traps, the Government is unlikely to reap many electoral rewards from the Budget. Even the bosses’ club, the Institute of Directors, noted that it was obvious Hunt’s plans were “aimed at rallying political support rather than addressing the UK’s longer-term economic issues”.

“It fell short of delivering a comprehensive plan for sustainable growth and investment," a spokesperson added. 

It’s there for everyone to see, from boss to worker. Average GDP growth has been just 1.5% since 2010 – the worst for any government since the Great Depression. This year, real-terms pay for workers is still below the level it was in 2008.

Councils are literally collapsing, while having to hike regressive council tax to the highest levels ever. The latest Local Government Information Unit research found that half of councils believe they could face bankruptcy within the next Parliament. 

Again, Hunt has effectively placed that in Labour’s camp to worry about. Or, if by some sorcery the Conservatives are re-elected (the polls are consistently not projecting this as a likely outcome), they will attempt to blame it on ‘profligate’ local authorities. 

When public services continue to be on their knees, it's likely most people would choose having a functioning society over a 2% tax cut. 

Polling last month for the The Fairness Foundation by Opinium showed that two in three Brits oppose tax cuts if they result in cuts to spending on public services. And nearly two-thirds (64%) support maintaining or increasing taxes. By contrast, only 16% support cutting taxes if it means cutting public services. 

Is Labour now in that minority – that 16% – supporting tax cuts funded by spending cuts?

Starmer's party is ruling out tax rises and pinning its hopes on growth, growth, growth. Should that not be forthcoming, the sunlit uplands may start to look a lot shadier. 

Do you have a story that needs highlighting? Get in touch by emailing josiah@bylinetimes.com

Last Friday the All-Ords share index finally escaped its straitjacket of see-sawing sideways within a range of roundly 6,600 to 7,900 since April 2021. The All-Ords reached 8007.1 points, beating its previous high on the 4 January 2022 (7926.8). See chart below. Technical analysts view this breakout to be a particularly good omen. The breakout Continue reading »

In Innovation for the Masses: How to Share the Benefits of the High-Tech Economy, Neil Lee proposes abandoning the Silicon Valley-style innovation hub, which concentrates its wealth, for alternative, more equitable models. Emphasising the role of the state and the need for adaptive approaches, Lee makes a nuanced and convincing case for reimagining how we “do” innovation to benefit the masses, writes Yulu Pi.

Professor Neil Lee will be speaking at an LSE panel event, How can we tackle inequalities through British public policy? on Tuesday 5 March at 6.30pm. Find details on how to attend here.

Innovation for the Masses: How to Share the Benefits of the High-Tech Economy. Neil Lee. University of California Press. 2024. 

While everyone is talking about AI innovations, Innovation for the Masses: How to Share the Benefits of the High-Tech Economy arrives as a timely and critical examination of innovation itself. Challenging the conventional view of Silicon Valley as the paradigm for innovation, the book seeks answers on how the benefits of innovations can be broadly shared across society.

When we talk about innovation, we often picture genius scientists from prestigious universities or tech giants creating radical technologies in million-dollar labs. But in his book, Neil Lee, Professor of Economic Geography at The London School of Economics and Political Science, tells us there is more to it. He suggests that our obsession with cutting-edge innovations and idolisation of superstar hubs like Silicon Valley and Oxbridge hinders better ways to link innovation with shared prosperity.

Lee stresses that innovation doesn’t make a difference if it stays locked up in labs; it needs to be shared, learned, improved and used to make real impacts.

Innovation goes beyond the invention of disruptive new technologies. It also involves improving existing technologies or merging them to generate new innovations. In this book, Lee illustrates this idea using mobile payment technologies as an example, showcasing how the combination of existing technologies – mobile phone and payment terminals – can spawn new innovations. He argues that “technologies evolve through incremental innovations in regular and occasionally larger leaps” (23). Moreover, Lee stresses that innovation doesn’t make a difference if it stays locked up in labs; it needs to be shared, learned, improved and used to make real impacts. It is important to think beyond the notion of a single radical invention and recognise the contributions not only of major inventors but of “tweakers” who make incremental improvements and implementers who operate and maintain innovative products (25).

In challenging the conventional narratives of innovation, this book guides us to expand our understanding of innovation and paves the way for a discussion on combining innovation with equity. When we pose the question “How do we foster innovations?”, we miss out on asking a crucial follow-up: “How do we foster innovations that translate into increased living standards for everyone?”. Lee argues that the incomplete line of questioning inevitably steers us towards flawed solutions – countries all over the world building their own Silicon-something.

While the San Francisco Bay Area is home to many successful start-up founders who have made billions, it simultaneously struggles with issues like severe homelessness.

While the San Francisco Bay Area is home to many successful start-up founders who have made billions, it simultaneously struggles with issues like severe homelessness. The staggering wealth gap is evident, with the top 1 per cent of households holding 48 times more wealth than the bottom 50 per cent. Other centres of innovation like Oxbridge and Shanghai are also highly unequal, with the benefits of innovations going to a small few.

The book introduces four alternative models of innovation – Switzerland, Sweden, Austria and Taiwan – that suggest innovation doesn’t inevitably coincide with high-level inequality.

The book introduces four alternative models of innovation – Switzerland, Sweden, Austria and Taiwan – that suggest innovation doesn’t inevitably coincide with high-level inequality. Through these examples, Lee highlights the significance of often-neglected aspects of innovation: adoption, diffusion and incremental improvements. Take Austria, for instance, which might not immediately come to mind as a global hub of disruptive innovation. Its strategic commitment to continuous innovation – particularly in its traditional, industrial sectors like steel and paper – sheds light on the more nuanced, yet equally impactful, facets of innovation. (92) Taiwan, on the other hand, gained its growth from technological development facilitated by its advanced research institutions such as the Industrial Technology Research Institute and state-led industrial policy. Foxconn stands as the world’s fourth-largest technology company, while the Taiwan Semiconductor Manufacturing Company (TSMC) accounts for half of the world’s chip production (116).

In all four examples, the state played a critical role in creating frameworks to ensure that benefits are broadly shared, showing that policies on innovation and mutual prosperity reinforce each other.

Building on these examples, the book highlights the vital role of the state in both spurring innovations and distributing the benefits of innovation. In all four examples, the state played a critical role in creating frameworks to ensure that benefits are broadly shared, showing that policies on innovation and mutual prosperity reinforce each other. Taking another look at Austria, ranked 17th in the World Intellectual Property Organization (WIPO)’s Global Innovation Index (99), its strength on innovation is accompanied by the state’s heavy investment on welfare to build a strong social safety net.

As the book draws to a close, it advocates for the development of a set of specific institutions. The first type, generative institutions, foster the development of radical innovations. These are heavily funded in the US, resulting, as British economist David Soskice claims, in the US dominance in cutting-edge technologies (169). The book shows a wide array of generative institutions through its four examples. For instance, in Taiwan, research laboratories play a crucial role in the success of its cutting-edge chip manufacturing, while the government directs financial resources towards facilitating job creation. On the other hand, Austria has concentrated its fast-growing R&D spending on the upgrading and specialisation of its low-tech industries of the past.

The second and third types, diffusive and redistributive institutions, aim to address issues of inequality, such as labour market polarisation and wealth concentration that might come with innovation. These two types of institutions offer people the opportunity to participate in the delivery, adoption and improvement of innovation. Switzerland’s mature vocational education system is a prime example of such institutions, “facilitating innovation and the diffusion of technology from elsewhere and ensuring that workers benefit.” (172)

Discussions about ‘good inequality’ where innovators are rewarded, and “bad inequality,” where wealth becomes too concentrated demonstrate the book’s strong willingness to call out inequality and tackle complex issues head-on.

Discussions about “good inequality” where innovators are rewarded, and “bad inequality,” where wealth becomes too concentrated demonstrate the book’s strong willingness to call out inequality and tackle complex issues head-on. (8) This integrity extends to Lee’s candid examination of the examples. Despite presenting them as models of how innovation can be paired with equity, he does not gloss over their imperfections. By recognising the persistent disparities in gender, race, and immigration status in all four of these examples, the book presents a balanced narrative that urges readers to think critically. Although these countries have made strides in sharing the benefits of innovation, they are far from perfect and still have a significant journey ahead to reduce these disparities. Take Switzerland, for example. Though it consistently tops the WIPO’s Global Innovation Index, maintaining its position for the 13th consecutive year in 2023, it grapples with one of the largest gender pay gaps in Europe. This gender inequality has deep roots, as it wasn’t until 1971 that women gained the right to vote in Swiss federal elections (71).

Lee warns against the naive replication of these success stories elsewhere without adapting them to the specific context. This frank and thorough approach enriches the conversation about innovation and inequality, making it a compelling and credible contribution to the discourse and a convincing argument for changing what we consider to be the purpose of innovation.

This post gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science.

Image Credit: vic josh on Shutterstock.

As opposition to AUKUS grows, the nuclear submarine project does not stand up to expert scrutiny. There is no doubt that opposition to the AUKUS agreement is growing within the Australian public. The more people see through the secrecy and obfuscation; the more they learn about the project’s far-reaching implications for them and the nation, Continue reading »