By Simon Basketter
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Tories’ tax turn—is this a new relationship for the state and capital?

This article is over 1 years, 6 months old
Governments veer between ­state-directed intervention and neoliberalism, leading to conflict and chaos for them and opportunities for resistance for our side
Issue 2824
Talking tax: Truss, Rees-Mogg and other cabinet ministers sat round a table

Truss and her cabinet have a different approach to their predecessors on tax, but the same aim of screwing the working class (Picture: Number 10 on Flickr)

Tory prime minister Liz Truss has made it clear she is opposed to “handouts”—except to the rich. The initial largesse for business was around £25 billion to help pay the bosses’ utility bills—before extra gifts emerged in Friday’s mini-budget.

Truss has declared that cutting taxes for the wealthy is not “unfair”. So it’s fine to reverse a planned rise in taxes on profits and let ­bankers’ bonuses spiral upwards.

The current brutal cap allows only a bonus of 200 percent of salary, and then only if the ­shareholders agree.

And, as all good Tories know, once you give ­handouts people ask for more. So there was Make UK banging on about how “industry is likely to need support for a longer period” on energy bills. The CBI bosses’ ­organisation fretted over “what happens when the six-month cap runs out?”

This is partially why the government didn’t let its own economic forecaster, the Office for Budget Responsibility, ­publish how the figures add up. It’s because they don’t.

The other reason is that there will be a huge increase in government debt. They are using up our cash to cut Amazon’s taxes even further and pay its gas bill.

Recent Tory chancellors have talked about helping everyone through the “distributional effects” of tax changes. Truss simply argues that tax cuts for the rich and businesses will boost growth.

Most politicians, including the US president, are currently turning away from “trickle down” economics. The Tories are hurtling towards it. The coalition of support that Boris Johnson put together—however exaggerated—seems irrelevant to Truss for now. All the noise about levelling up has gone.

The false promises to poorer areas if they voted Tory are to be replaced with a glut of ­enterprise zones that will have even lower taxes, fewer work regulations and much reduced environmental restrictions.

But the Bank of England doesn’t see how it can all add up. Truss claims tax cuts can speed up the economy and the crumbs will fall our way. Meanwhile, the bank thinks inflation is out of hand and will lead to a damaging crisis.

So it is deliberately seeking to crash the economy and drive up unemployment. The bank’s decision last week to raise ­interest rates to 2.25 ­percent from 1.75 percent—their ­highest level since November 2008—came with warnings that Britain was now in a recession. This move is based on the bank’s determination to cut demand across the economy by reducing the money supply.

Inflation is the result of the chaos of capitalism because of the pandemic, global shortages, war in Ukraine and outright speculation and profiteering. So the only way the policy will “work” is by triggering a wave of bankruptcies and unemployment when ­companies can’t pay their debts.

People at the top are divided over whether Truss and Kwasi Kwarteng’s plans are the best way to screw workers. But they all agree that it’s the working class, not the bosses, who are going to suffer.

There is a united call to accept even more substantial cuts in real pay. And the Tories will require that people on benefits also face another big squeeze. They will try and will fail to balance the books with public sector cuts.

But the low tax, free market neoliberal ideology now being pushed by the Tories, has ­verbally at least been out of fashion for a while. As Martin Wolf in the Financial Times newspaper put it, “We need to recognise instead that 40 years on, Thatcherism is a zombie idea.”

Financial crisis, austerity and Brexit have not changed the weak state of the British economy. As Wolf notes, “The idea that further tax cuts and deregulation (such as lifting the cap on bankers’ bonuses) will transform this performance is a fantasy.”

Neoliberalism was the method adopted by governments from the 1980s ­particularly those led by Margaret Thatcher and Ronald Reagan, then deepened by Bill Clinton and Tony Blair. It was a ruthless bosses’ response to the economic, ­political and industrial crises of the 1970s.

It centred on the idea that the market was the best way to distribute resources. The effective functioning of the market depended on free trade, the end of state subsidies, tax cuts and privatisation.

This meant freeing up “wealth creators” from unnecessary constraints such as taxes and “red tape” regulations. Politically it aimed at ­undermining the confidence of workers to fight back.

It was a shift but not a total break. Nation states always govern in the interests of capital. Governments all play the role of stabilising the system and ensuring, as far as possible, the conditions to keep capitalism going.

They can be compelled to take over sectors of industry that are indispensable to the economy. States are needed to create infrastructure, clean up after crises and repress resistance. In times of crisis that role can increase.

One OECD rich nations report pointed out that in 2011, 10 percent of the 2,000 largest globally listed firms were owned by nation states. In the last decade, that doubled to 20 percent.

Moral hazard is an idea borrowed from the insurance industry. It is the idea that people who are insured take more risks.

The right use this as an ­argument to cut support systems, benefits and health and care services. But it also makes the ideological fans of ­neoliberalism nervous of ­bailouts. If capital is overinsured, they argue, the system won’t thrive.

During the neoliberal 1980s, competition was used to discipline bosses and ­workers. Bankruptcies and mass unemployment undermined ­organised labour and boosted the profits of the more competitive firms.

British capitalism is in a very weak state to try and use that kind of market discipline again.

The financial crash of 2008 shot a hole in the ideology of neoliberalism. It prompted the part-­nationalisation of the banks, at least temporarily.

Profits were for the bosses but losses were socialised. And governments propped up the banks and then made ­working class people pay through austerity and tax rises.

Nonetheless bailouts are risky for the bosses. That’s ­partially because if you can bail out the bankers you can bail out the poor—and that can become more than a slogan. But it is also a problem for the bosses economically.

The underlying cause of the 2008 crash was a crisis of profitability—a crisis neither Thatcher nor her successors fixed.

Central banks slashed ­interest rates and pumped cheap credit into the economy.

Rather than clearing out unprofitable bits of capital, it fuelled the growth of “Zombie firms”. These are companies on life support that wouldn’t ­survive without credit.

From a weak ­recovery from the 2008 financial crisis, the financial system was again showing signs of a ­looming crisis in late 2019. Then came the pandemic. Covid-19 was a huge shock to the system and its ­orthodoxies. It prompted interventions on an even more spectacular scale than during the crisis of 2008.

States intervened again, with measures geared to the ­enormous benefit of the wealthy. The scandals of who the Tories gave the contracts to was merely the tip of a corrupt, profiteering iceberg. But it was also a deliberate attempt to stop it melting. 

The bosses are about to be propped up yet again. But they have even less room than before.

The Bank of England essentially covered the rise in government debt. In 2020 it bought an extra £450 billion of government bonds, effectively printing the money. But that was then. Now ­inflation has shot up. This lies at the heart of the difference between the Bank of England and the Thatcher re-enactment fantasists of the Tories.

Most governments look set to veer between ­state-directed intervention and neoliberalism, leading to conflict, division and chaos for them and opportunities for resistance for our side.

Truss wants to return to a more old fashioned neoliberal vision. There are two things that can stop this—the weak state of British capitalism and us. Governments make choices. And if governments can find money to fund private corporations, then we can force them to find money for services and workers.

We have to reject appeals for social peace and resist attempts to make us pay to prop up profits. Instead we have to rise up faster than prices against the bosses, the bankers, the Tories and most importantly the system they represent.

Further reading

Trussonomics Confronts the Crisis
by Joseph Choonara In ISJ 176—coming soon.
Read online here or £6 from socialistworker.co.uk/shop/

The State and Capital Today
by Chris Harman
Go here

Unravelling Capitalism: a Guide to Marxist Political Economy
by Joseph Choonara £8.99. Details here

Available at Bookmarks.
Phone 020 7637 1848 or go here

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