THE Institute for Fiscal Studies (IFS), an influential independent economic think-tank that dispenses ‘advice’ on financial matters to the government, has weighed in this week with some serious warnings to Labour Chancellor Rachel Reeves about next month’s Autumn Budget.
This Budget has become a make-or-break crisis for both Reeves and the Starmer government as they attempt to deal with a ‘black hole’ in the UK economy that is estimated to be between £30 billion and £50 billion.
This ‘black hole’ in the public finances is basically the difference between what the government spends and its income, primarily through taxation.
Reeves’ first attempt, in last year’s mini-budget to make a dent in the black hole, was to push cutting disability benefits for the sick and disabled, along with insisting on keeping the hated Tory two-child cap on benefits.
This provoked such a massive uprising from workers that, despite having a huge majority in Parliament, Starmer was forced to back down.
But this debt crisis has not gone away. In fact, it has increased as UK economic productivity has slumped, affecting taxation returns, while government spending has increased, not least due to the increased interest repayments on the UK’s massive national debt, fast approaching £3 trillion, and around 100% of the UK’s GDP (the total wealth produced in Britain).
In the past months, an increasingly desperate Reeves has been floating any number of minor changes to taxation along with some unspecified spending cuts to raise money to fill the ever-growing hole.
This week, the IFS cut through all of Reeves’ attempt to tinker with the debt crisis crushing British capitalism, telling her bluntly that in her budget she must announce billions of pounds of cuts to the welfare state budget.
In their report this week, the IFS stated that the world capitalist financial markets see ‘spending reform as a critical signal of intent’ and that slashing spending on welfare is viewed by these markets as the ‘bellwether’ of the Labour government’s ability to force the working class to accept the destruction of the welfare state for the benefit of the global banks and speculators.
Moyeen Islam, who works as a strategist for Barclays Bank and wrote this section of the IFS report, said: ‘Welfare is totemic for the market because it shows a willingness to do hard things.’
Islam made a scathing reference to the disaster of Reeves mini-budget last year and the forced climb down over disability benefit cuts saying that while the savings proposed in these cuts of around £6 billion were tiny, in the context of the UK’s massive national debt, carrying it out would have meant Labour would have gained ‘an appreciation from the market that you are willing to take hard decisions’.
He added that the forced climb down by Starmer was ‘a red flag’ for the bond market’ that finances the UK debt by buying government bonds.
Among the proposals the IFS is insisting Labour should immediately adopt, include: Scrapping the pensions triple-lock, slashing disability and health-related benefits, along with cutting spending on special educational needs for children.
If Starmer’s government doesn’t carry out the instructions of the capitalist financial markets, then the investors will either drive up debt repayments to unaffordable levels or pull out of buying government bonds completely, collapsing the economy and forcing it further into catastrophic recession.
The IFS and the money markets treat the working class and youth as a force that can be safely ignored and treated with contempt in the drive to extract maximum profits from a bankrupt British capitalist system.
However, the working class has demonstrated it will not sit back and accept the destruction of all the gains of the welfare state or see pensioners, the disabled and vulnerable children thrown into the gutter for the profit of the bankers and hedge fund speculators.
The time has come for the powerful working class to intervene by forcing the TUC to immediately organise a general strike to bring down the Starmer government, bringing in a workers government that will nationalise the banks, and major industries.
The only way forward is to overthrow bankrupt capitalism with the victory of the British socialist revolution, expropriating the bosses and the bankers!