Austerity continues, whoever leads Tories

Orpington CLP’s Barry Rodin warns that government policies risk another recession.

Five different Conservative Prime Ministers since 2016 confirm that staying in power is the Tories’ number one priority. Their trick is to provide a fresh face and narrative to revive electoral fortunes. But whoever is leader, the outcome is divisive class-war politics.

Austerity, so damaging to living standards and well-being, is the Tories’ dreadful legacy. Little progress has been made in tackling sluggish productivity growth, inadequate levels of investment and decaying infrastructure. Health and social care services are at breaking point. No wonder Britain is so vulnerable to the cost of living crisis.

The Tory horror show advocates trickle-down economics. Tax cuts for the wealthy are supposed to trickle-down to everyone else. This is a throwback to the 1980s, the decade of ‘greed is good’, unemployment and inequality. It didn’t work then and cannot now. Even the International Monetary Fund rejects trickle-down theory, arguing that increasing income share of the poor and middle classes actually increases economic growth.

Economic challenges, in an increasingly interconnected global economy, have become so deep-rooted and complex that measures to improve one aspect of the economy can create problems elsewhere. This was not heeded in the doomed September mini-budget. Unfunded and inflationary tax cuts to trigger economic growth were in direct conflict with the Bank of England’s deflationary measures (hiking interest rates). Unsurprisingly, market chaos erupted, including the near collapse of pension funds.

The Tories have now resorted to their default approach of more austerity measures. The new Chancellor has already scotched most proposed tax cuts and is planning controls on government borrowing and spending to placate international financial markets. Given the high rate of inflation, just freezing departmental budgets will result in real cuts and renewed austerity.

This is on top of over 10 years of stagnant or even falling living standards. Real wages after adjusting for price inflation are expected in 2023 to fall back below their level in 2008. The emerging gig economy with precarious employment has increased hardship.

Contrast this with a continuing asset boom, mostly benefiting the wealthy. One consequence is that the average house price to average pay ratio increased massively from 4 at the turn of the century to an eye-watering 7.5 now.

Historically low mortgage interest rates between 2009-2021 enabled house buyers to repay much higher loans. However, with interest rates rising sharply, our heavily mortgaged generation will pay a hefty price.

Furthermore, the toxic cocktail of a pitifully low supply of affordable or social housing, stagnating wages and precarious employment have priced many younger people out of the housing market into private rented accommodation and spiralling rents.

The government say that interest rates are rising internationally to bring demand in line with supply of energy, goods and services, which have been depressed because of the global pandemic and the Ukraine war. However, with the UK also experiencing fiscal instability, the danger is another deep recession.

The renewed financial squeeze actually started last year with the freezing of personal tax allowances and the higher rate tax threshold until at least 2026. Unless personal allowances and thresholds move in line with inflation, the tax that people pay will increase as a proportion of their income. The rapid rise in inflation has increased the potency of this stealth tax.

The most telling outcome of enduring austerity and the cost-of- living crises is that by 2024 as many as 14 million people are expected to be in absolute poverty.

Britain urgently needs a transformative Labour government focusing on wealth redistribution, education and training, abolishing austerity, rebuilding public services and enhancing quality-of-life. Recent financial turbulence confirms the importance of macro-economic planning and detailed funding, with predictability that even financial markets, not natural allies of progressive governments, can live with.

An effective process to levy windfall taxes on huge unexpected corporate profits (energy exploration and supply) is essential to help finance economic recovery. It is also imperative to invest in green technology and renewable energy to improve infrastructure and productivity and achieve the necessary economic and tax growth without harming the environment.

A strategic aim is to bring our energy, including the national grid, and water systems into democratic public ownership. Surpluses can be used for reinvestment to help achieve essential emissions targets or used to reduce bills.