Sunak and austerity: second round

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The Conservative Party has, on at least two occasions in its modern political history, demonstrated its talent for turning an economic crisis into an opportunity to craft a new domestic political narrative.

For the first time, the UK experienced a deep cost of living crisis caused by fossil fuels in the mid-1970s, and inflation rose to 16.9% by December 1974. The electoral defeat persuaded Sir Keith Joseph and Margaret Thatcher to move away ideologically from the social-democratic “middle ground”, occupied by conservative governments of a nation from Churchill to heath, towards a “political common ground with the people and their aspirations”.

Joseph argued that, as a response to inflation, monetarism was not enough if there were not also the indispensable reduction of the state sector and the indispensable encouragement of enterprise. We are over-governed, over-spent, over-taxed, over-borrowed and over-populated.”

Inflation and the resulting cost of living crisis has been the Conservative Party’s platform for devising nothing less than a “radical change in British political economy‘, issued by the Tory governments led by Thatcher who brought with them “a different analysis and a different set of policies”particularly with regard to the causes of and remedies for the relative economic decline of the United Kingdom.

The long-standing quest for a British developmental state implementing a technocratic industrial modernization program to reverse the trend of British national decline gave way to the entrenchment of a development marketand a different constitution for the economy brought about by laws, legislations, policies and regulations focusing on market liberalization and deregulation, and privatization to push back the borders of the state.

The second occasion occurred in the aftermath of the financial crisis of 2007-2008, which was caused by irresponsible lending and failure of private financial marketsand facilitated by the financial liberalization and deregulation of the Conservative Party during the 1980s. David Cameron opportunistically recast the domestic political narrative from one focused on private market failure to one economy” of the Labor Party and the need to reduce the size of the state.

Cameron argued “the age of irresponsibility gives way to the age of austerity”, and later claim in his own political memoirs that “we probably didn’t cut enough”. We could have done more, even faster.”

Other people’s experience and assessment of austerity would be so different. In October 2010, the very month that George Osborne delivered his project for apply austerity in the House of Commons, the International Monetary Fund argued that the effect of austerity would be contraction rather than expansion.

In December 2016, Mark Carney, then Governor of the Bank of England, describe Cameron’s “Age of Austerity” as “the first lost decade since the 1860s”.

While Rishi Sunak’s spring statement presented a third opportunity to use an economic crisis to recast the Conservative Party’s political discourse, he appears to have faced a number of significant obstacles to that ambition.

First, unlike the economic crises of 1976 and 2009, there is no Labor government to assign blame and responsibility. The Conservative Party has been in government for almost a dozen years and as a result its economic policies have unique national ownership over the 2.2% decline in real living standards in 2022-23, their biggest fiscal year falls on a record.

Second, if Sunak was considering using his spring declaration to make a virtue of a second age of austerity, to facilitate future tax cuts to free up ‘a new corporate culture’he would do well to remember the magnitude of the fiscal and economic failure of this agenda.

Under the Cameron-Clegg, Cameron and May governments, from June 2010 to July 2019, continued austerity resulted in the addition of £754bn, or around £82bn a year, to the Kingdom’s budget -United. public sector net debt.

The Conservative one-nation governments of 1951-64 and 1970-74 provided an annual UK average real GDP growth of 2.82% and 2.59% respectively, the “corporate culture” fostered by the Thatcher and Major governments from 1979 to 1997 produced an annual average of 2.09%. Meanwhile, Cameron and Osborne’s “austerity era” produced an annual average of just 1.32% and May’s just 1.13%.

One consequence of this prolonged failure to grow the UK economy today is that “the average worker is no better than 2008.

Third, by its own actions in providing £378 billion direct financial support and borrowing £321 billion (equivalent to 15% of GDP) in a single exercise, largely financed by the monetary creation of the Bank of England, in the face of the greatest economic contraction for 300 years, the Johnson government has demonstrated, in particular to its own backbenchers expecting it to spend to ‘level up’, that there has always been an alternative to austerity.

It has never been a question of economic necessity and unavoidable budgetary discipline, but always a question of political and ideological choice.

If the UK is now “over-governed, over-spent, over-taxed, over-borrowed”, as Sir Keith Joseph once claimed in April 1976, it is because of the actions of Sunak’s own Conservative Party, not those of their political opponents.

Sunak’s decision to prioritize future tax cuts over immediate and direct financial assistance to low-income and fixed-income people is as deeply ideological as were Cameron’s and Osborne’s decisions to pass austerity from April 2009.

However, it carries equal political and electoral risks.

Sunak chose to copy the example of his predecessor as chancellor, Nigel Lawson. He dangled the fiscal and electoral carrot of a a penny cut in the basic rate of income tax in the 2024 budget, with the probable intention of copying Lawson in March 1988 in effect delivering a cut of twopence.

Sunak could even propose a threepence cut, which would be followed by a manifesto to reduce it to 15p in the next Parliament in the next election. This would follow the precedent set by the 1987 Conservative Party manifesto to offer income tax cuts ‘as soon as we can safely’.

But millions of voters today face a cost of living crisis for which the promise of future income tax cuts is irrelevant, especially when the overall tax burden is in fact increasing to its highest share of national income since Clement Atlee was prime minister.

Having already plunged from eleventh to third from bottom in the ConservativeHome ranking table of Popularity of ministersSunak’s second age of austerity electoral popularity could face an even harsher verdict on May 6.

By Simon Leelecturer in politics at the University of Hull.

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