LONG before the Budget itself, speculation on its contents has been rising, some of it fuelled by Treasury ministers themselves.

The debate has tended to focus on what type of tax rises there will be, as well as speculation on the possibility of further cuts to public spending. Very little debate has taken place on the other key policy option, which is growth.

In Britain, issues such as growth and what drives it are generally little discussed, including on the left. That is a mistake.

In an era when the economy is automatically expanding, then inevitably the discussion shifts to how the product of that growth should be allocated. Arguments about redistribution dominate. But that era has long gone.

The British economy has barely grown since 2010, and each subsequent “shock” has put it on a lower growth trajectory than before — global financial crash of 2008; austerity; Brexit; lockdown; and now potentially Donald Trump’s tariffs.

Austerity was said to be necessary to address the crises in government finances in the Western economies following the global financial crash. It has spectacularly failed on those terms.

The German Chancellor Friedrich Merz says now that the welfare state is no longer affordable. French ministers are pretending the crisis is so grave the IMF will have to be called in. And this wild exaggeration has also been repeated in this country.

All of this aiming to establish a consensus for implementing even more cuts.

Of course, all this confirms that austerity does not have the effect of improving government finances, just undermining the living standards of the population on which those finances rest.

The real purpose of austerity was to effect a transfer of incomes from poor to rich and from labour to capital. So, while there were continuous cuts in welfare and in government spending, there were tax cuts for the ultra-high paid, and subsidies for big business.

If the hope was that this would act as an incentive to private investment and economic growth, this too has proved a general failure. Britain is now at the higher end of the European range of growth whose boundaries are effectively zero to 1 per cent a year.

The US economy may be heading in the same direction as Trump in his second term is the first president to implement US austerity through the “great big beautiful Bill.”

Now, attention has turned to taxes and other areas of government finances. Entitlements to welfare and even the state retirement age are under scrutiny for cuts.

There are two strategic difficulties for the Chancellor Rachel Reeves, even excluding the straitjacket of her fiscal rules.

The first difficulty is that most taxes are paid by workers and the poor, not by the rich. In the last financial year, £700 billion in tax was collected by income tax, National Insurance, VAT and fuel duty. All of these are overwhelmingly paid by workers and the poor. By contrast, just £100bn was paid in corporate taxes.  

At the same time, the government’s borrowing requirement to meet this shortfall was £70bn and there are concerns that the borrowing is on course to be even more in the current financial year.

Under current circumstances it is unfeasible that the deficit could be plugged without increasing taxes on ordinary people. This is true even if increased taxes were concentrated on higher-income taxpayers. The increase in revenue is simply too small.

There is a very good reason why campaigners and some left MPs have focused on wealth taxes, because these shift the burden away from ordinary people. They have already been hit hard. At the time of the October Budget there was a hue and cry raised over the increase in employers’ National Insurance contributions.

But a far greater amount was raised by freezing income tax thresholds, which is a stealth tax on workers’ income.

The supporters of a wealth tax suggest it could raise £20 to £30bn a year, even after some capital flight, relocation and attempts to hide assets. This is clearly far preferable to either more cuts or taxes on ordinary people.

But it leaves a second, structural difficulty. Even £30bn is way short of £70bn. Wealth taxes can make an important contribution in addressing the crisis in public finances in a progressive way, but not decisive role.

This is because the essential problem of the British economy is weak growth, driven by weak investment. Even with that weakness the level of GDP this year is set to approach £3 trillion (that is, 3,000 billion) and the total tax revenue is set to reach £1.2trn.

The apparently daunting levels of debt and deficits in public finances are relatively small in this context.

If, say, we need spending on public services and welfare to grow in real terms (after inflation) by around 2.5 per cent per year, then closing a £70bn deficit requires additional growth of just 3 per cent to achieve that.

Yet, as previously noted, the economy is growing at a rate not much faster than 1 per cent. The gap between current and required levels of growth seem daunting.  

The government’s chosen policy, deregulation and hoping the private sector will invest, is not working. It has not worked since austerity was introduced 15 years ago.

Using public finances to offer the private sector a new bonanza in the form of new PPP (public–private partnership) deals in the NHS, as the government has just done, is adding insult to injury.

The answer must be public investment on a sufficient scale to raise the growth rate sufficiently to reach sustainable government finances. This means increasing public sector investment by an additional 2 per cent of GDP in the first instance, by at least £60bn.

There is no shortage of infrastructure, housing, scientific, transport and other sectors that need this investment.

However, this government is, like its predecessors, ideologically committed to the private sector, even when the public sector is obviously superior, as the PPP announcement shows. The Comprehensive Spending Review outlined cuts in public investment. A different government could make different choices. But it would have to dismantle a key part of this government’s policy, which is the surge in military spending.

This is because it is simply not possible to raise public investment by 2 per cent of GDP and simultaneously raise military spending by a further 2.7 per cent of GDP. That would require an increase of £140bn in government outlays. Then we are in Liz Truss territory.

Public investment-led growth is the key to the British crisis. But it cannot be done while preparing for war at the same time.