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the cost of living crisis worsens in the UK inflation is at its highest level in more than 40 years millions of people cannot afford to buy food or heat their homes so will the new government's budget be enough to ease the pain this is Inside Story [Music] hello welcome to the program I'm Hashem the UK government says it's making difficult decisions to control a spiraling cost of living crisis millions of people are struggling to pay their food and energy bills and things could get much worse as winter sets in inflation has hit 11.1 percent the highest level in 41 years families are paying 90 percent more for gas electricity and fuel than they were a year ago Charities say more people are asking for help the previous prime minister Needs Trust resigned in September after her Finance Minister announced 53 billion dollars in unfunded tax cuts that's booked the markets and the pound took a nosedive the current Finance Minister under prime minister Rishi sunak is raising taxes on cutting public spending instead this is a balanced path to stability tackling inflation to reduce the cost of living and protect pensioner savings while supporting the economy on a path to growth but it means taking difficult decisions who says there are easy answers is not being straight with the British people Andrew Simmons has more from London more than 38 billion dollars in cuts and around 28 and a half billion dollars raised in increased taxation really nobody in the UK is going to escape paying more tax because stealth is the word with this Autumn statement or as anyone else would call it a budget the stealth is applying to the salaries of people in the when in the sense that they will actually find that their thresholds will be crossed quite easily they stay the same but with inflation high and with wages increasing they'll still end up paying more tax because they'll cross thresholds add to that a number of increases in indirect Taxation and the fact that most of the really big cuts will be held over until 2025 coincidentally no not uh that's just after the general elections are due so a very big political move there by this conservative government and also there are some takeaways which are appear quite well at advantageous to the public such as health spending education spending and spending on on the care sector however that is really going to be overtaken by inflation and that applies to many of the goodies in this budget in bold terms straightforwardly people are going to really suffer in the UK because of this Autumn statement Andrew Simmons for Inside Story thank you now let's bring in our guests who will be joining us from London today we have Patrick Diamond professor in public policy at Queen Mary University of London Alfie Sterling is the director of research of the new economics foundation and Max Lawson is the head of inequality policy at Oxfam International welcome to the program Patrick is this an attempt by Jeremy Hunt to fix an economy that has been grappling with inflation potential for recession or more of a political attempt by the Tories to build a credibility that has been battered by blunders I think it's a very political uh economic statement which has behind it two fundamental intentions one you've already referred to which is attempting to restore The credibility of the government after the disastrous mini budget in September which rocked financial markets but then the second political aspect to this statement is trying to create a platform for a conservative election victory in 2024 when we expect the next election to happen and this statement today was I think an effort to try to map out the political choices and debates um that will shape that election campaign Alfie if you look at the other statement by uh Jeremy Hunt so he's talking about the need to hike taxes and cut Public's pending as somehow an ideal remedy coupled with the decision by the bank of England to increase the uh interest rate or something which has been unprecedented over the last 33 years do you see this as a plan that could work that could fix the economy and not I think it's highly um problematic I mean you know the UK is facing a far more severe economic downturn than other countries other Rich economies I mean we've just heard today a record collapse in disposable uh income per person in real terms of seven percent over two years that is as I say the deepest on record um here in the UK and it is far deeper uh than in other comparable economies as I said so I have to ask the question and where does this come from and it's come from our own policies including the ones you just mentioned so the bank of England increasing interest rates uh faster harder than other countries um quite likely uh overdoing it and pushing us into a deeper recession than could otherwise have been the case and today getting an awesome statement that has a net contractionary start and what I mean by that is taking money out of the economy even as we're going into recession and even as we then kind of have a slow recovery um out of that this the policies today are spending cuts tax Rises that will harm that economic recovery Max when you look at the statement it offers some metrics some decisions to be made but then when it comes to the very core question of where does this leave the most vulnerable those who are on low income the the government does not really seem to be offering some very clear answers yeah I think it's hard to exaggerate the scale of suffering uh out there in the country for the poorest people but a large proportion of the population I think you know in some ways politically it's a lot easier for the Tories to ignore the poorest people in the country it's very hard to ignore the sheer numbers of people being hit by this real terms cut in their their spending power huge hikes in their their mortgage payments we have a situation with one in seven people ing to the TUC are skipping meals because they can't get enough food and then we're still one of the richest countries in the world so the scale of suffering not just for the product of the poor although that is where people are hardest here but across the countries there's a serious political problem for this government and one that's going to cause enormous uh suffering and hardship for for families across the country Patrick how did the UK get to this particular point should we blame the former prime minister is trust and her Chancellor of the exchequer quasi-quarting well it's a legacy I think of a series of decisions which have been taken over a number of years obviously separating out the causal impact of these different decisions is um is in itself challenging but obviously we've had Britain's decision to leave the European Union that followed a period of very significant austerity in the early 2010s which itself inflicted significant damage both on public infrastructure and also on the welfare state so when we when the UK went into the crisis generated by covid-19 and then obviously the subsequent geopolitical crisis caused not least by the war in Ukraine it was already in an economically and socially vulnerable position and so I think the measures that we're seeing today just a reflection of that the government's having to take these very difficult economic decisions because the economic fundamentals in the UK are so weak and they're weak because of I think decisions going back over the last decade I think it was it was quite obvious I mean when when when Liz truss and quasi quoting decided to move ahead with the plan which is basically based on the very notion of supply side economics where you cut you decide for tax cuts without having the uh without going to cut public uh spending and this has increased borrowing across the Spectrum created a panic and we know what happened right after that now we have Jeremy Hunter is trying to reverse all those decisions but it it does not really give you strong guarantees that in like six months from now we're going to see an economy which is back on track yeah I mean I I wouldn't uh over exaggerate the impact of the trust um quietang mini budget and that's for two reasons one is that um the main impact of that budget in terms of affecting the UK going forward was an increased cost of government borrowing um but actually that has now been essentially fully reversed since the budget uh came out in September those markets have now eradicated if you like that that incompetency premium that they were giving to the UK that's gone um and secondly the budget didn't show us the sort of hard limits to borrowing per se you know the wrong lessons that budget is to say markets go into Panic if a country like the UK borrows the lesson is um if a country borrows but doesn't support the economy with that borrowing then markets take a very dim view so it's quite important to learn that lesson therefore I mean looking at this budget the fact that we're not supporting the economy despite a cost of living crisis despite a recession um shows that we're not learning that right lesson uh it's certainly not you know mandated by by investors Alfie when you look at the graphs all the charts presented by different countries uh particularly in in Europe most of them having exactly the same set of problems Rising gas electricity prices food shortages High transport prices coupled with the ramifications from the Russian invasion of the Ukraine but still they managed to bring their own uh to bring the economy to the levels which were before covid-19 except for the UK which is like in far behind why yeah that's right I mean a lot of it is down the fundamentals but um previous guest was referring to so the UK went into the pandemic uh you know it had hardly been worse prepared um you know we had a health system that was near breaking point we had record uh period of low uh low average earnings weak productivity we went into it incredibly weak and that's affected the way we've been recovered and we also mismanaged the pandemic I think compared to other countries um as well but one thing I would say as well which goes back to this point I was making around the public finances is that the EU um certainly the Eurozone countries have suspended their fiscal rules so they are not about to cut uh cut spending or raise taxes going into this difficult uh period they've suspended their targets whereas the UK is now going down a new route of austerity it's an entirely different direction and I think that will become increasingly important in the coming years max if you look at all the projections they basically say that we're likely to see recession moving all the way towards the the first half of 2023 what does it mean for the families who are suffering as we speak oh it means terrible hardship it means choosing between Heating and eating I mean I think of the the some of the parents at my kids school here here in one of the poorest areas of London you know really struggling to to make ends meet and these are not people who are on benefits these are people who are both working you know both holding down jobs but struggling to to pay their bills and I think it's really important to get the message across that there is plenty of money in this country and it's good to see the chancellor increased taxes at the top a small amount but there's so much more he could do and should be done to ensure the richest people in our country pay more tax for instance the the rate of tax on capital gains is still 20 instead of and the rate on taxes from work is much much higher you know the highest income tax rate being 45 so you make you pay less tax on the money you earn from your bank account and interest rates and your savings than you do all the money from hard work really simple steps he could take to raise a lot more money from the very rich people in our country and to pay to protect the poorers so we don't have to go down this false air end of austerity which will only hurt our economy and her Ordinary People even more let's tax the rich let's not hurt the poor Patrick was was brexit a responsibility in a way or another for this situation because you look at neighboring economies they manage somehow to navigate through this process by doing business with a more of an expanded market and they managed to mitigate the impact when you look at the UK it seems to be a different scenario yeah I wouldn't over exaggerate or oversimplify um the effects that are going on here and I think to say that it's simply the consequence of brexit would be um a distortion there are obviously many different factors of work here which explain the the prevailing economic situation that the UK is in I think that the the truth is the the underlying fundamentals of the British economy are weak and have been weak for some time due to low levels of public and private investment and due to poor economic decision making and those have been exacerbated by a series of shocks and crises of which um covert is one the geopolitical crisis around Ukraine is another and obviously choosing to leave the European market in the last few years has also inflicted further shocks on particular parts of the economy um one of the really striking features of brexit is that in some respects London the southeast has been relatively well insulated from the economic shock but other parts of the UK economy the north of England and so on Scotland and parts of trails are doing really very badly indeed so there's also been a kind of asymmetric effect that brexit has created so when you take all these factors together it just underlines really the weak economic position that Britain now finds itself in Alpha does the economy have all the fundamentals it takes to not only plug the 59 billion plus hold in the country's public finances but also rebuild the economy well I mean the first thing is there isn't a 54 billion hole it's just a gap between the government's own political targets um and look on the current forecasts um and it's one of the reasons why this budget is so political because uh the government is trying to make it about Public Finance sustainability even though that is a function of political Choice um to distract from all the underlying things that um in your previous guest was talking about in the economy But ultimately what it means for people that's the real crisis here it's the crisis of living standards that's seven percent squeeze in real incomes over the next two years and that is what the government has failed to address Max we're talking about austerity measures which are going to continue for quite some time it means that some people will have to pay four thousand pounds a year to uh to try to tackle some of the uh Rising bills that they have to deal with could the middle class be mostly targeted as far as those Authority measures are concerned or do you see it more expanding towards all the sections of the society well I I think where it becomes a real political problem uh for the Tories is is with Rising interest rates and they're really significant increases in the cost of mortgages for people are really overstretched first-time buyers who are spending huge proportion of their income already on servicing their mortgages or paying very high rents particularly here in London and the southeast where I am I mean it's not the same as not being able to choose between eating and heating and the huge suffering is really coming in the bottom half of the population particularly for for women particularly for people of color but I think as a political problem it when it starts to look at the hit the living standards of the vast majority of the population and people can make a connection between that and the clear economic mismanagement of the current government and and previous iterations of the current government then I think that is a really really big issue because way more people poorest are going to feel the squeeze and it's going to make a big big difference politically Patrick the shadow Chancellor Rachel Reeves said the country cannot afford the country is sick of being ripped off by the Tories again and again and she said that she doesn't see way out from an economy which is not based on uh growth could this be the moment to build momentum for the labor party and see how it could benefit from this situation politically speaking well certainly in the last few months the the loss of economic trust and credibility in the conservative government under Elizabeth trust the previous prime minister and I think now under Rishi sinach um has been obviously very striking and that does um that's bound to strengthen the position of the opposition labor party because people can see that the current government's policies are not very successful there's a real loss of confidence both among the public at last but also I'm on business and even among the financial markets which have traditionally been strong supporters of conservative governments so certainly um Labor's position has been strengthened but of course it still faces a challenge itself which is to say what it would do and I think the intention of the statement today by Jeremy Hunt was to try to lay the ground over the next couple of years for a challenge to labor which is to say what would you do would you be willing to borrow more would you tax more if you did tax more who would you to tax um which he had to go along with some of the cuts in public spending that we're prepared to make so Labor's position is of course stronger than it's been for some time but it has to get its own act together um and it needs to be able to um have a clear argument and respond to the question that the government will pose which is what would labor do if it was in government the UK get out of this mass and at what price yeah and I think the key thing of course is is that UK not as a sort of homogenous entity but the people living there and the distributional consequences and the consequence of inequality but I think actually you can come through this period in a way that does protect the living standards of those that most need protecting the poorest in society um and you basically to do three things you need to first of all acknowledge that this is a although happening um economic mistakes at home is fundamentally a price shock it's common to many countries number two therefore say right we need to protect people's living standards as these price shock moves through um the system so that support of energy bills there's much more targeted than what we already have it's much more protection in terms of Public Service investment and investment in our income safety net and then number three to say you need to make sure that all of that support for families doesn't add to inflation further and set up the tax Rises that would offset that and if you were to go down that route of um you know acknowledging uh the real world putting a place of support and raising taxes on those who can afford it prevent the situation getting worse you can come through the situation and come out of it stronger certainly stronger than what the government is currently uh the path government has set us on Max when you look at a decade of of missteps uh which which have left the Public Services close to a breaking point now you have two key sectors here education and health care if this is going to go for quite some time uh is it bad news for all everybody in the UK I think if you look at cuts to the NHS then it is absolutely I mean the vast majority of British people use the National Health Service you know Private health care is only used by the very very rich in this country and that is very different to many of the other countries where Oxfam Works where you know universal health coverage is only the privilege of the rich so a massive Cuts in real in real terms of what the NHS can do off the back of their heroic steps they took during covid it does impact absolutely everybody in the country and that's another reason why it's a political uh politically Dynamite I do think that um it is good news for the opposition that the the conservative party uh their record on economic management has taken such a beating but I also think that the labor party I agree with the previous speaker it needs to be much clearer about what they're going to do and I think in particular they need to be very specific about how they're going to increase taxation on the very very wealthy let's hear them call for a wealth tax for instance we've seen some very good solid research showing that a wealth tax on the top one percent could raise another 10 billion let's be brave about taxing the super rich we know from polling that that is enormously popular across the political Spectrum so there are things that I think labor could be doing to to take the initiative further and show that they there is an alternative to austerity that is an alternative to the cuts that are hurting the poorest all over the country Patrick what happens when it comes to the very issue of taxes they say that they would like to cut taxes because they see it as one of the key components of their own strategy I'm talking about the tourists but the power base itself which has always been skeptical of this help very notion of uh cutting taxes is it something that could erode the trust that the Tories has been having most of the time with its power base yeah I mean it's important I think just to reflect on the the wild oscillations in fiscal policy that the UK has recently been going through I think it's been pointed out that's mini budget um was the largest tax cutting budget for 50 years but the package that Jeremy Hunters announced today is the largest tax Rising um budget statement by government in 30 years so in the space of a few months um UK fiscal policy has kind of dramatically changed Direction um I think for the conservatives the real problem is that in successive elections um their main claim to economic competence has been based around their apparent commitment to generally low taxes and of course what we've seen in this package today is really the end of the road for that strategy because taxes have risen and will continue to rise and many middle income groups will be caught in this kind of pencil movement and that's bound to effect um The Electoral popularity of the conservatives particularly in marginal seats that are populated by a higher proportion of these kinds of middle-income earners they're going to be hit really hard by the measures that Jeremy Hunters announced today I'll see if you don't mind in less than 30 seconds if you look at all the metrics now London losing position as the most valuable European stock market weak pound fears of recession and inflation at the at its highest in more than 41 years where does it leave the UK um it leaves us um exposed but actually those are all symptoms of the problem not the problem itself and the and the problem that underlies those symptoms is the wrong decisions at the wrong time by our politicians in government and our Central Bank Patrick Diamond Alfie Sterling Max Lawson I really appreciate your Insight looking forward to talking to you in the near future thank you two for watching you can see the program again anytime by visiting our website Al jazeera.com for further discussion go to our Facebook page that's facebook.com forward slash AJ Inside Story you can also join the conversation on Twitter I'll hand it is at AJ inside sorry for me and the entire team here in Doha bye for now [Music]