Dividing Lines: The economy

Continuing his series on the major policy divisions in politics, Rafael Behr tackles the economy.

What’s the issue?
This is the big one. When the coalition was formed it claimed its governing purpose was to rescue Britain from an economic emergency. The remedy devised by George Osborne was an immediate course of spending cuts to reduce the Budget deficit and limit the rise in public debt as a proportion of gross domestic product. The theory was that a shock-and-awe display of fiscal discipline would reassure international investors that Britain was a “safe haven” from global turbulence. Cutting the public sector is also meant to release growth potential in the private sector, which was thought to have been “crowded out” by state expansion under Labour.

Is it working?
No. The economy didn’t grow at all last year. It is 3.3 per cent smaller than at its boom-time peak. Osborne is on course to fail his self-imposed tests of credibility – eliminating the “structural” deficit (the part of government overspend that doesn’t vanish automatically when the economy is operating at full capacity) and reducing public debt as a proportion of GDP by the end of this parliament.

What went wrong?
The government says its inheritance from Labour was worse than previously thought and that the eurozone crisis has blown recovery off course. Labour says the rush to austerity has drained demand out of the economy; when companies and households were too indebted or too frightened to spend, the government should have stepped in to stimulate activity – hitting the gas instead of slamming on the brakes.

So, Labour would turn on the money taps again?
Economically, that is the logic of Ed Balls’s position but politically he is in a bind. Lots of people are persuaded that an underlying cause of the crisis was “Gordon Brown spending all the money”. Whenever Balls attempts to make his macroeconomic argument, he ends up trying to rehabilitate the reputation of a period in Labour’s record that even many on his own side think is better off left for dead. Besides, by the time of the next election, the public finances will be in such a woeful state that there will be no spare capacity to increase spending. The campaign will be about who cuts what and with what end in mind.

Couldn’t the government borrow to spend?
Yes. And it is quietly doing just that, because there is no growth. There is a case for saying that the low long-term interest rates available now make it a good time to borrow for investment in such things as housing and transport that would create jobs and strengthen our economic capacity.

Even Osborne has discreetly conceded the point that cuts alone won’t kick-start growth. In his Autumn Statement last year, the Chancellor said he would find £5bn for infrastructure investment, but the money has to be carved out by making cuts to other budgets. He has painted himself into a corner, insisting any dilution of austerity would be a disaster and portraying borrowing as inherently wicked. So, to be true to their own political script, the Tories have to pretend to be less reliant on borrowing than they are. It is higher now than at the last election, and rising. David Cameron recently claimed that the government is “paying down the debt” but by any measure it simply isn’t.

That’s a bit sneaky, isn’t it?
Very. The question is how long they’ll get away with it. There is a strong expectation that the credit-rating agencies will downgrade the UK this year, torpedoing Osborne’s “safe haven” claim. Balls’s problem is that he struggles to call out the Tories for relying on debt: his core macroeconomic analysis demands the same fiscal remedy. Intellectually, his position can be made coherent but it relies on a distinction between “good” Labour borrowing – premeditated to spur growth – and “bad” Tory borrowing – accidental, driven by a failed austerity plan. The difference is not immediately obvious to many voters.

Besides, no one doubts that the Tories at least want to limit public spending, while Labour risks looking like it wants to duck that challenge altogether. In order to reassure swing voters that it is a careful steward of taxpayers’ money, the opposition could end up accepting spending restraints that don’t permit the kind of stimulus that has been central to its macroeconomic prescription.

So Labour thinks we should be borrowing more but doesn’t feel comfortable admitting it, and the Tories are borrowing more but pretend they aren’t?
Pretty much. A vital difference is that many Conservatives think the government isn’t cutting budgets deeply enough. The Tory hawks think the way out of the growth impasse is on the “supply side”– cutting back on regulations and employment rights in the belief that excessive bureaucracy is stifling enterprise. Labour sees that as a sign the Tories are using the financial crisis as a pretext to pursue an old agenda of shrinking the role of government in public life. It doesn’t, Labour says, tackle the underlying problem of inadequate demand.

What do the Lib Dems think?
Their instincts are with Labour. Nick Clegg has conceded that infrastructure spending was cut too hard in the coalition’s early days. Yet within the broad outline of austerity the Lib Dems are lashed to Osborne’s mast; they sign off on his budgets.

That doesn’t sound very comfortable.
In this debate, no one is.

 

Rafael Behr's "Dividing Lines" series appears regularly in the New Statesman magazine.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

This article first appeared in the 04 February 2013 issue of the New Statesman, The Intervention Trap

Photo: Getty
Show Hide image

The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

0800 7318496