The chancellor must go big to keep Britain on board

The new prime minister used his Labour party conference speech last month to say that the last 40 years of economic policy have failed us – and he’s right. The evidence is all around, from sewage pumped into our rivers to failing care homes, extortionate rents, and a climate in crisis.

At the New Economics Foundation (NEF), we’ve been waiting four decades for a prime minister to say we need to build a new economy. NEF was founded in 1986 to resist the emerging economic ideology of neoliberalism, a vision of economics which promoted free markets, privatisation, deregulation and austerity.

But it will not be Andy Burnham presenting the autumn budget in the House of Commons at the end of this month. This is the budget where we will see if his chancellor, John Healey, will keep pace with the prime minister’s ambition to remake the economy to benefit all of us. Healey will need to be brave in taking on vested interests and broken orthodoxies and show the public whose side he is on.

Unravelling the tendrils of neoliberalism is a long-term project which demands sustained public support. The trouble is the government also faces a major short-term problem.

Burnham’s ambitions won’t be realised unless his chancellor does what his predecessors have not: solve the cost-of-living crisis. Since the first wave of high inflation caused by Russia’s invasion of Ukraine the cost-of-living crisis has toppled incumbent governments the world over. Failure to keep the cost of energy, food and housing in check saw off Truss and Sunak, and there’s strong evidence that these concerns were at the heart of Starmer’s collapse in support.

Households have barely recovered from the soaring inflation which followed Russia’s invasion of Ukraine and are now about to be hit by a wave of price rises stemming from the US and Israel’s strikes on Iran. Energy bills this winter could rise even higher than their 2022/​23 peak. Petrol prices are surging, and El Nino threatens to drive a global food price spike. If this government can’t shield households from the brunt of these crises, they risk losing public buy-in for their bigger project at the first hurdle.

The chancellor should introduce a bold cost-of-living package that reduces the cost of essentials and raises living standards. As energy is driving this crisis, preventing runaway energy bills should be the focus. Support must go deeper than the rumoured discount for those on means-tested benefits — an essential energy guarantee would provide a basic amount of essential energy to everyone at a discounted rate.

Next, the chancellor should turn his attention to housing, particularly the soaring rents for private tenants. Healey should introduce an emergency brake on rent rises, to be followed by a comprehensive system of fair rents.

Finally, transport: Healey should go further than Burnham’s restoration of the £2 bus fare cap, with a cap of £1 and further funding for more bus services. Providing free bus travel for all under-25s would also give low-income young people a way to get to work, easing the crisis of youth unemployment and inactivity.

As government borrowing costs are high and inflation rising, the spending we are calling for should be offset with tax rises. Those making windfalls from our current predicament — fossil-fuel companies and banks — and those taking rents, dividends and capital gains must pay their fair share.

The chancellor should raise capital gains tax to the same rate as income tax and broaden the scope of what capital gains tax is paid on. He should apply national insurance beyond salaries, extending it to income from rental properties and dividends. And he should introduce a windfall tax on banks to claw back some of the unearned profits from high interest rates.

The good news is that raising taxes to fund policies which tackle the cost of living has a double benefit: it protects households from the ravages of inflation and has positive effects on our economy as a whole. These policies will directly lower prices and help limit inflation, allowing the Bank of England to avoid further interest rate hikes that drive up the cost of government borrowing. We need Treasury coordination with the Bank to keep interest rates down because public investment is at the very heart of the transformation our economy needs.

With the cost of living addressed, the chancellor can start laying the foundations for a new economy: one which discards the old neoliberal obsessions with austerity, privatisation, deregulation and power for the wealthy. Burnham has already announced a new publicly owned company to invest in our electricity grid, alongside a promise to deliver the biggest social housebuilding programme since the post-war era and sweeping devolution of power.

These are promising beginnings, but not enough. Healey should go further by announcing a major expansion and acceleration of funds for social housebuilding, alongside making it easier for local authorities to buy back housing to convert into social homes. And he must commit to taking key services back into public ownership, starting with Thames Water then moving on to core infrastructure held by private monopolies in sectors like energy, care, and transport.

Not everything can be solved at the upcoming budget, but the chancellor can put in place the key planks that will enable Burnham’s project. Beyond just tax and spend this means launching a review of the government’s relationship with the Bank, rethinking how the fiscal rules interact with public investment and ownership, and unlocking the potential of institutions like the national wealth fund.

The autumn budget will have failed if it does not protect the majority of people from soaring prices, limit inflation, and put the foundations in place to start building a new economy.

Image: HM Treasury Flickr