Austerity – Just by Another Name

Yesterday's announcements saw Rishi Sunak cut £10 billion worth of planned spending from the UK economy. It might be a new form of austerity, but it is austerity nonetheless – and none of it is necessary.

There is a vaguely satisfying synchronicity in Rishi Sunak’s spending review coinciding with the publication of a new report documenting the low levels of economic comprehension among the British public. After all, the material content of Sunak’s spending review is difficult to disentangle from the context into which it emerges.

Perhaps unsurprisingly, the immediate reaction from many of the putative leading lights of political journalism – those, lest it be forgotten, who play a significant role in shaping that context – suggests lacking even a passing knowledge of economics is no hindrance to obtaining astronomical salaries and high-ranking editorial positions.

Laura Kuenssberg led yesterday’s catastrophising vanguard; her suggestions that the national credit card had been maxed out bore closer resemblance to interventions by Conservative backbenchers than the commentary of a public broadcaster. At this stage, however, we should be seldom surprised at the levels of economic illiteracy among many of the most highly remunerated journalists in the land: Robert Peston’s recent hyperbolic fever dream of a thread comparing Johnson to Castro, and Britain to ‘Cuba without the sunshine’, surely representing the nadir as far as such analysis is concerned.

What then, if yesterday’s spending review is not a last-gasp attempt by a country about to go bankrupt to stave off insolvency – and it is not – can we glean from Sunak’s announcement? The popular consensus is that we have moved, over the last decade, from having a Conservative Prime Minister claiming the UK’s economy could end up like that of Greece without drastic spending cuts, to having one more concerned with Greek mythology, willing to turn on the spending taps at will, heralding an end to austerity.

Yesterday’s spending review should arguably temper any such assessments. To run through some of the announcements is to feel a sense of déjà vu for the Osborne and Hammond budgets of years past. Public sector pay has been frozen – in other words, as a result of inflation, it has been cut. Local Housing Allowances have been frozen – once again, in the real world, this will mean they will cover less and less of people’s rent. The £20 weekly uplift to Universal Credit – an incommensurate gesture in and of itself – looks set to be abolished in April. Legacy benefits – the parts of the welfare system not subsumed within Universal Credit – are being increased by a derisory 0.5%: equating, to many, to a mere 37p per week increase. Indeed, public spending itself – as Torsten Bell of the Resolution Foundation has noted – has been cut by £10 billion compared to the government’s original plans set out in March.

In many ways, this is not wholly surprising: as a recent Tortoise profile of Rishi Sunak noted, one of his earliest interventions in the House of Commons following his election in 2015 was to argue that, “in normal times, public spending should not exceed 37 per cent of GDP.” For context, that is a lower level of state spending than found in the United States; the UK’s figure per the OECD, as of 2018, was 41%, a fall of 6% since 2010. The level of social provision found in the Scandinavian social democracies is in part a consequence of their considerably greater public expenditure: Norway, Denmark, and Sweden all hover around the 50% mark.

That the Conservative Party are utilising this crisis to provide lucrative contractual opportunities to their allies, acquaintances, and donors appears, at this point, beyond contention. Their attempts to utilise the crisis to reformulate the UK economy, however, have been less well discussed. The issues bedevilling the UK economy are at this point relatively well-known: low levels of productivity and pay; intense spatial economic inequalities; a multi-faceted housing crisis; a threadbare social safety net. The issue threatening us all – climate change – remains ever-present.

The coronavirus crisis – a sudden, exogenous economic shock – has not made these problems disappear. It has heightened their contradictions, and – as an astonishingly wide range of economists, from the IMF to the IEA to IPPR, are noting – has in fact given governments in countries such as the UK an opportunity to act upon these problems by eschewing orthodox fears over debts and deficits and instead making the investments required to both spur growth and tackle these issues. The usual objections, questionable though they may well be, about public sector spending ‘crowding out’ the private sector self-evidently do not currently apply, as the economist Jonathan Portes has explained.

Yesterday’s spending review, however, leads one to conclude that the UK is once again taking something of a different path. Johnson, clearly not a details man, appears content to allow Sunak to shape the economic agenda as long as he is able to don a hard-hat, deliver verbose speeches about broadband vermicelli, and pump cash into the coffers of the Ministry of Defence. As such, we saw today the contours of a novel kind of austerity with Johnsonian characteristics: cash for schools coupled to pay cuts for teachers; admissions that unemployment is set to rise to 2.6 million, yet not a single mention of Universal Credit.

With Cummings ejected from his mission control headquarters, the next few years look set to be characterised by a Frankenstein’s monster of Johnsonian boosterism, Jendrick-inflected pork barrel politics, and Sunak’s coiffured, highly-polished brand of state retrenchment. The economics this is delivering make little sense: cutting public sector pay in pursuit of a bizarre notion of fairness will not just suck demand out of the economy; it will also, as a paper cited by James Meadway shows, reverberate back into the wider economy, in turn potentially further lowering private sector pay.

‘Getting Brexit Done’ temporarily squared the circle that unites seats held by newly-elected Northern Tory MPs eager for more spending in their patch, with what Meadway has characterised as the ‘pro-market, pro-virus Conservative faction… having conniptions about the size of the government debt.’ As the economic pain, sadly set to be exacerbated by Sunak’s announcement today, deepens, and Tory MPs are rendered restive, this uneasy alliance on the Conservative benches may begin to falter. The task for the Left is therefore twofold: not just to point out the incoherence, inadequacy, and fundamentally unnecessary nature of this punitive economic approach; but also to seek to capitalise on and engender the political splits that lie latent in this Johnsonian austerity.