Labour's VAT Proposal Is Nonsense

In the face of a global surge in energy prices, partly caused by the sharp rebound in the global economy, and partly caused by the vast oceans of liquidity that central banks have pumped into it that has devalued currencies, and led to an inevitable inflation, Labour is proposing that the 5% VAT on energy bills be reduced to zero for six months. The proposal is typical opportunist nonsense, and economically illiterate.

The proposal does nothing to either increase energy supply, or to reduce the cost of production of energy. It the equivalent of the Tories measures to keep house prices propped up, by subsidising demand, whilst maintaining all of the restrictions of supply that flow from the monopoly of land ownership, the functioning of the Green Belt, and so on. As Jonathan Portes pointed out, this morning, it is a particularly idiotic measure, if you are also committed to reducing energy consumption, as part of reaching net zero carbon emissions. Portes was also correct in saying that people do not worry about paying their energy bills – rather they worry about paying their bills in total, hence heating or eating.

The idea of fuel poverty, food poverty, housing poverty and so on, is a result of opportunist politics, and the creation of a whole gamut of special interest groups that spring up like mushrooms around these issues, often providing well paid jobs, or routes into politics and other spheres, for middle-class people. For opportunist politicians, always on the look out for where they might be able to scrounge the odd vote, jumping on a bandwagon to address the needs of this or that group, is always an easier option than having to argue for principled political solutions for the problems of workers overall. The reality is that there is no such thing as fuel poverty, food poverty, or housing poverty etc., there is just poverty, or more correctly a lack of adequate incomes.

Its true that people who have inadequate incomes are also led to have to use inefficient forms of energy, as well as to tend to rely more heavily on more costly fast food, to have to live in expensive rented accommodation, to depend on inefficient and expensive public transport, and so on. All of that puts them in an even worse position, but the cause of all that, in the first place, is inadequate income overall. Deal with that problem, and the other problems disappear along with it. The question then is, how to deal with that problem.

Portes suggested that rather than subsidising energy prices, by cutting the VAT on energy (which in any case would probably simply be absorbed by energy providers able to raise their own prices, just as house builders absorbed subsidies by continuing to raise house prices) a better measure would be to reverse the £20 a week cut in Universal Credit. In part, that is right, but, because UC is a benefit paid also to those in work, it too, acts as a subsidy to low paying employers, who are usually those that are inefficient, and have low levels of productivity, and whose profits rest on continuing to pay low wages, subsidised by the state. If anything, the words spoken by Boris Johnson's Tories, about wanting to create a higher wage economy, by raising productivity, are far more progressive than what is coming out of the mouths of Labour politicians. The trouble is, of course, that, for the last 40 years, the Tories have done the very opposite, of feeding the interests of the inefficient small businesses, of facilitating a low wage, low productivity economy, and no one can believe their words now.

And, of course, as both Marx and Lenin pointed out, within the context of capitalism, the road to this higher productivity, higher wage economy is not without its pain. The higher productivity, by definition, means that the same amount is produced with fewer workers, and so it means that some workers lose their jobs. How many do so, and for how long, depends on a range of other factors, about the state of the economy at the particular time. As Marx points out, this reduction in employment is always relative rather than absolute. If 10 workers are employed and produce 100 units, whereas 20 workers are employed and produce 300 units, this 50% increase in productivity has resulted in 10 workers, who otherwise would have been employed, being unemployed. Nevertheless, the absolute number of workers has increased by 100% in absolute terms, and as Marx points out in Theories of Surplus Value, this cannot be divorced from the fact that the increase in productivity means that the rate of surplus value rises, the value of labour-power falls, and capital is released that can be used for additional accumulation in existing or new spheres, thereby, increasing the levels of employment overall.

Increasing, UC simply subsidises the low paying employers, who can continue to pay low wages, and provide poor conditions, whereas what actually needs to happen is that those employers have to either raise their wages, or else go out of business, enabling capital in those spheres to be rationalised, so that productivity is raised. And, those subsidies come from taxes paid from the surplus value produced by bigger more efficient capitals, thereby slowing down their own expansion.  In the meantime, rather than subsidising these low paying employers, the resources should be used to provide better benefits for the unemployed. That is particularly the case currently when everywhere there are large labour shortages forcing employers to have to bid for labour, and push up wages. This is a time when the burden should be lifted from the taxes paid by workers, and instead be placed squarely on the profits of capital.

When Lenin and the Russian Marxists pointed out this reality at the end of the 19th century, in relation to the inevitable consequence that a large number of poor peasants would lose their land, as they failed to be able to compete, the Nardodniks snarled that the Marxists wanted to deprive the peasants of their land, so as to encourage the development of capitalism. But, as Lenin responded, it was of course, not true that that was what the Marxists wanted. The Marxists wanted to go beyond the capitalists solutions, and to move to socialism as swiftly as possible. But, that swift movement forwards to socialism, particularly in a backward economy such as that of Russia, did not flow from trying to hold back the development of capitalism itself, which would only have made that situation even worse, and further delayed the possibility of Socialism. As he put it a few years later,

“And from these principles it follows that the idea of seeking salvation for the working class in anything save the further development of capitalism is reactionary. In countries like Russia, the working class suffers not so much from capitalism as from the insufficient development of capitalism. The working class is therefore decidedly interested in the broadest, freest and most rapid development of capitalism. The removal of all the remnants of the old order which are hampering the broad, free and rapid development of capitalism is of decided advantage to the working class.”

(Two Tactics of Social Democracy)

Lenin pointed out that contrary to the Narodnik assertions, the Marxists sought the transition to Socialism, not simply trying to hold back capitalist development, which was taking place in any case, and which, in the case of Russia's backward economy was a necessary means of transforming the means of production so as to make Socialism possible. And, the same is true, now, in relation to the measures that are in the interests of workers. Tinkering with taxes and benefits, in ways that subsidise low-paying employers, and so hold back the process by which those inefficient businesses are weeded out, leaving capital to be used where it can be efficient, and pay higher wages, does no favours to workers.

Unlike Russia, Britain already has means of production developed to a stage at which Socialism is possible, the dominant form of that capital is large-scale socialised capital, in the form of cooperatives and joint stock companies (corporations), which are the collective property of the workers within those companies. But, control of that capital has been snatched from the hands of those workers, and handed to shareholders, who do not own that property. That is an unjustifiable, and unsustainable position. But, for so long as that position is sustained, and so capitalism persists, we have to deal with the reality, and not with some idealised, but non-existent reality. And, that reality, also includes the fact that, in relation to the large majority of those small inefficient businesses, they are not made up of these socialised capitals, but continue to be of the form of small private capitals of the type the liberals idolise, and which were typical of the early days of industrial capital, in the 18th and early 19th century. As far as these primitive capitals are concerned, the process of their concentration and centralisation, the need to weed them out, so that a few large socialised capitals replace them, is still a reality. It is a reality that Marxists do not seek to hold back, for the simple reason, as Lenin pointed out to the Narodniks, is one that itself leads to the conditions required for Socialism.

And, whilst, the means of production in Britain, have long since reached a stage in which Socialism becomes theoretically possible, it is also the case that the world does not stand still. If Britain today only had the same means of production, the same levels of productivity it had in 1900, then any idea of constructing “Socialism In One Country”, would be as ludicrous as was that idea for Russia in 1924. The development of the means of production is always relative, and to even begin the process of socialist construction, an economy needs to be able to compete on at least an even level with the capitalist economies that surround it. The reality is that Socialism In One Country is a reactionary fantasy, because capitalism has raised the productive forces, and living standards based upon them, to the level it has, as a result of a high level of development of international trade, and a global division of labour. That has to be the starting point for Socialism, which seeks to go beyond it.

It is why Brexit is such a stupid and reactionary development. It can only slow down the development of capitalism in Britain, leaving it trailing other capitalist powers, particularly those of its most immediate competitors in Europe, and so slowing down the potential for socialist transformation. Even in terms of a rational, progressive social-democracy that sought to develop the large scale industrial capital more rationally, quickly and effectively, Brexit is stupid, as any such development requires at least something the size of the EU. If Labour really wanted to provide even a progressive social-democratic solution, then instead of these ridiculous, populist proposals such as scrapping VAT on energy, and other similar gimmicks seeking to scrounge votes from this or that sectional interest, they should scrap their existing reactionary pro-Brexit position, and begin to mobilise for a return to the EU; they should commit to a minimum wage of at least £600 per week; they should commit to industrial democracy, by removing the voting rights of shareholders, and giving democratic control of businesses to workers.