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Nobel laureate economist warns UK Budget fails to end austerity

Joseph Stiglitz said the Budget fails to end austerity, containing “more rhetoric than conviction” despite promises of a redistributive plan. 
Professor Joseph Stiglitz has warned the UK's 2021 Budget has failed to end austerity and contains “more rhetoric than conviction” Credit: World Economic Forum (Wikimedia Commons)

A Nobel prize winning economist has warned the UK Government’s Budget plans could lead to a spike in homelessness and the costs of rebuilding being “disproportionately” met by the poorest in society. 

Professor Joseph Stiglitz said the financial proposals laid out by Chancellor Rishi Sunak this week have failed to end austerity and contain “more rhetoric than conviction”, following promises of a redistributive economic plan. 

The economist said the increased debt of some of the most vulnerable in society could lead to a flood of people facing eviction, and warned there had not been a sufficient commitment to public services from the Conservatives. 

“It is important to realise how important local bodies are,” he said. “This is the time in which they need more support, not withdrawing support. 

“The issue of homelessness that may arise, the fact that those at the bottom of the population have actually got more in debt, means the stay in evictions don’t solve the problem. It means they owe more and more.”

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Unemployment across the UK has already risen to more than five per cent amid pressures from the pandemic despite more than £100billion having already been spent on supporting jobs. Efforts to tackle the virus itself and support public services are expected to cost nearly £600billion in the next two years. 

Stiglitz said the way to rebuild after the pandemic is to implement windfall taxes to recoup some funding for the public purse from companies with “above-average” profits as a “first priority” instead of the government’s current approach. 

Environmental and digital taxes could also be put in place, he said, which would see companies pay to operate services which cause ecological harm or are based online. 

He added: “The Budget needs to be comprehensive. 

“The pandemic has illustrated again the importance of health and social insurance. Those are things that should have been expanded with a commitment to the public health service. 

Concerns were also raised about the lack of funding to ensure schools can be safely reopened, along with claims that continued austerity cuts – even if not in name – could hit the most deprived areas of the UK. 

Stiglitz said: “We want to make sure children can go back to school safety. The interruption has been particularly hard on those at the bottom, but that means schools have to be retrofitted and that should have been a bigger part of the budget. 

“Cutting back support for local authorities or not expanding it in the way that is needed is either forcing them to raise rates or cut back services which go disproportionately to the poor. So it’s a regressive measure and hidden because people don’t trace out the full effects.”

He added: “This is not an equal opportunity virus, Covid goes after those at the bottom. When you look at this Budget you see there is more rhetoric than conviction.”

A Professor in public policy at New York’s Columbia University, the Stiglitz was awarded the 2001 Nobel Memorial Prize in Economic Sciences. He has also served as senior vice president and chief economist of the World Bank, as well as holding positions in US President Clinton’s Council of Economic Advisers.

The Nobel Laureate was speaking at an event organised by economic reform campaigners Claim the Future and hosted by former Shadow Chancellor John McDonnell. 

Major changes to the country’s tax system – including a freeze on personal allowances – could see more than a million people start paying income tax for the first time, with a further 10 per cent of adults dragged into the 40 per cent top rate.

On Thursday night the Labour politician claimed a “stealth tax” has been introduced by Chancellor Rishi Sunak, branding tax proposals set out in the Budget as insufficient to tackle Britain’s “grotesque” levels of poverty and inequality. 

The Chancellor has said the threshold freeze would hit those on higher incomes more, but Mr McDonnell expressed concerns about the continued suffering of those on lower incomes in the coming year. 

Chancellor Rishi Sunak in Downing Street with briefcase ahead of budget announcement
Rishi Sunak budget 2021
Chancellor Rishi Sunak has ben accused of imposing a "stealth tax" on the poorest in society. Credit: UK Government

The Labour MP for Hayes and Harlington emphasised that the poorest in society should not be forced to pay for the country’s recovery, claiming taxation of businesses would have been better for working people.

He said: “We heard a lot about the tax proposals that the chancellor was bringing forward in terms of increasing corporation tax. 

“With regard to taxation, there was a stealth tax introduced which is a freezing of the tax thresholds which means for the lower paid there will be a tax increase next year. 

“The worst elements of the Budget are that austerity continues with a pay freeze for public sector workers and cuts returning. 

“We were hoping that there may well be a redistributive form of budget this time around which would tackle some of the grotesque levels of poverty and inequality which we have within society. Unfortunately that wasn’t the case.”

The Labour MP for Hayes and Harlington said a huge number of tax allowances and reliefs could now be introduced as part of the budget could see behaviour border on “tax avoidance” by big businesses. 

Mr Sunak also unveiled an increase to the tax on company profits from 19 per cent to 25 cent, although this will not kick in until 2023 and smaller firms will be exempted.

The government’s promised increase to corporation tax in 2023 is also facing scrutiny, with Mr McDonnell concerned that this promise will not be fulfilled and another Westminster election held ahead of this rise coming into effect.  

The Treasury was approached for comment by the Big Issue.