Toggle high contrast

TUC Budget Statement 2016

Issue date

Introduction

In 2010, as the economy was emerging from what the Chancellor described as the “longest and deepest recession in living memory” George Osborne set out his analysis of the challenges facing British policy makers.   He described a UK economic model based on debt (in his view both public and private) and imbalance, and made the case for change.

While the TUC has consistently opposed the Chancellor’s assertion that public debt was a cause rather than a consequence of the financial crash, we also recognise that his wider analysis identified a number of significant economic concerns: soaring asset prices, low investment and saving, high private debt, low exports, a persistent current account deficit, a fall in living standards and regional and industrial imbalances.

However, our key point of disagreement is with the Chancellor’s view that government stands in the way of delivering balanced and sustainable growth. Contrary to his position, the TUC understands that government has a vital role to play in securing such a recovery, through more supportive fiscal policy as well as wider supply-side policy measures. 

In the years since 2010 the global and UK economy alike have moved forward only fitfully; no decisive momentum has been achieved. The Budget approaches against the backdrop of a slowing world economy and resumed volatility in financial markets. The OECD and IMF have both recently sounded the alarm and called for an urgent policy response.

Fiscal consolidation aimed at reducing the role of the state has also proved detrimental to overall economic conditions. Economic expansion over the past five years has fallen around £140bn – nearly a third – short of expectations. 

Productivity and wages have been depressed, and expansion has been heavily reliant on the same imbalances as under the pre-crisis model. The cumulative effects of restrained activity is now obvious in price data, with the economy experiencing disinflation for four years.

The consequences for working people have been significant, both in terms of the quality and security of work, reduced standards of living and withdrawn public services and welfare support. And our fear is that rather than long-awaited improvements, the years ahead will hold even greater concerns. Given the latest weakening of economic conditions, projected improvements in the public finances once more are unlikely to materialise in full and the Chancellor has in the meantime indicated that he will review existing spending plans. But in spite of repeated rounds of public spending cuts, the public debt crisis is further than ever from resolution. There is now a danger that persistent disinflation turns into outright deflation, bringing even poorer prospects for living standards in the period ahead.

Seemingly discarding policy doctrine that they have previously supported, the OECD now argue that increasing public investment will support future growth and improve the sustainability of public finances. The broader implication is that a new policy approach would not only be fairer and better for working people, but for economic conditions more generally, including for the public finances.

The TUC Budget Statement therefore sets out an interpretation of current economic events and social conditions (Section 2), and then makes a series of recommendations for a stronger economy (Section 3). We hope the Chancellor will take this opportunity to recognise that delivering against his aspirations for a better balanced economic model will need both more supportive fiscal policy alongside wider policy change. 

Summary of recommendations

The Budget is set against the backdrop of growing fears in financial markets and worries about the strength of the global economy going forward. The OECD in particular is calling for expansionary policies coordinated across countries to revive demand, as protection against deflationary forces. In line with previous TUC reports, the OECD now emphasise not only that spending cuts might be harmful to the public finances, but that spending increases should improve the public finances by strengthening the economy.

The policies outlined in this submission therefore seek to act on supply and demand in tandem. They set out proposals for targeted increased government spending aimed to lift economic activity, alongside wider actions aiming to ensure that UK industry is well positioned for sustainable, balanced growth and to compete internationally in the future. Likewise actions aimed at improving the conditions of employment seek also to improve activity and prosperity.

The recommendations, which set out TUC priorities for action, are summarised below.

Infrastructure

  • Commit to an immediate infrastructure boost on the basis of a re-appraisal of the level of capacity in the economy and a clear target based on increasing investment as a share of GDP.
  • Use expanded infrastructure investment to fulfil the Government’s commitment to providing three million apprenticeships by 2020

Wages

  • Equalise the national minimum wage for young people aged 21-24 and ensure that minimum wage rates for workers under 21 grow at least as fast as rates for adults.
  • Lift the one per cent public sector paybill cap.

Public services

  • Reverse the planned cut to local government grants.
  • Lift the cap on the Housing Revenue Account spending in order to revitalise social housing stock.
  • Commit to sufficient funding of health and care services.
  • Municipalise local bus services, along the lines of the London model.

Industrial strategy

  • Introduce an urgent, comprehensive rescue package for British steel.
  • Deliver a long-term roadmap to increase UK investment in research and development to three per cent of GDP.
  • Implement a sustainable, modern industrial strategy, with responsibility shared between both the Department for Business, Innovation and Skills and the Department for Energy and Climate Change.
  • Develop industrial roadmaps that both meet the UK’s economic and industrial needs, at both regional and sectoral level, and put the UK on track to meet its commitments to CO2 reduction under the Paris Agreement.
  • Introduce vital borrowing powers for both the British Business Bank and the Green Investment Bank and roll back on privatisation of the Green Investment Banks.
  • Give specific consideration to how best to pursue the development of Carbon Capture and Storage technology.
  • Allow biomass to compete in this autumn’s Contracts for Difference (CfD) auction, to award CfDs on a whole system cost basis and to give biomass conversion the same length contracts as other renewable technologies. 
  • Ensure sufficient funding for further education, and pay attention to the needs to the needs of industry, and the value of involving employees in planning skills training.

Banking reform

  • Conduct a review of the implementation of the ICB’s proposals to ensure that the UK develops a strong and robust banking system capable of servicing the wider economy.

Corporate governance

  • Reframe directors’ duties so the promotion of long-term success is the primary aim. Serving the interests of investors should be secondary to this central aim, as is the case for the other stakeholder groups included in Section 172 of the Companies Act 2006 (employees, suppliers, customers and local communities).
  • Legislate so that shareholders’ corporate governance rights in companies should be subject to a minimum period of shareholding of at least two years.

Pension saving

  • Move to a system of flat rate tax relief at around 33 per cent in order to support low and middle income earners to save.

Opportunities for young people

  • Introduce a Job Guarantee for long-term unemployed young people.
  • Consult on the development of a new youth employment and skills service.
  • Introduce a right to fixed hours contracts for workers who work regular hours and mandate that workers on irregular or intermittent hours be paid an allowance to reward the flexibility they provide to employers.

Fairness in the workplace

  • Abolish employment tribunal fees so that statutory employment rights are effective in delivering the intended benefits for individuals, the economy and wider society.
  • Provide a significant increase in funding for labour market enforcement to prevent exploitative working practices and to ensure core labour standards like paying the national minimum wage are observed. 
  • Withdraw the Trade Union Bill.

Download the full TUC Budget Statement:

Enable Two-Factor Authentication

To access the admin area, you will need to setup two-factor authentication (TFA).

Setup now