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

David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide