Leader: It is not “socialism” to say we are facing market failure on a grand scale

By refusing to accept that the market is not working for the majority, the Tories have put themselves at odds with the public.

For decades after the Thatcher revolution of the 1980s, politicians of the left and the right put their faith in a new economic paradigm as the guarantee of prosperity for the majority. Today, after the “Great Contraction” of 2008-2009, they can no longer do so with the same confidence. Economic growth in Britain has returned after three years of stagnation but it is forecast that real wages will not increase until 2015 and will not return to their pre-crash levels until 2023. A broken energy market, in which six companies control 98 per cent of supply, has left 4.5 million people in fuel poverty. Extortionate rents have forced millions to rely on housing benefit. By any measure, this is market failure on a grand scale.

The living standards crisis is a challenge for all political parties but most of all for the Conservatives, the natural defenders of capitalism. After Labour pledged to freeze gas and electricity prices until 2017 and to build 200,000 homes a year by 2020, David Cameron’s party had a chance to offer its own intelligent and imaginative solutions. But at its conference in Manchester, it retreated to its comfort zone. Aided by an ever more partisan right-wing press, speaker after speaker derided Mr Miliband as a “socialist” and a “Marxist”, as if concern at falling wages were comparable to a belief in world revolution.

In doing so, they failed to recognise that when Margaret Thatcher assailed her left-wing opponents in the 1980s, she did so in the confidence that her free-market policies retained popular support. Mr Cameron does not enjoy that luxury. Polls show that roughly two-thirds of voters support a 50p top income-tax rate, a mansion tax, stronger workers’ rights, a living wage and the renationalisation of the railways and the privatised utilities. If Mr Miliband is a socialist, so is much of the public.

The most unintentionally revealing moment of the conference came when George Osborne rebuked the Labour leader for suggesting that “the cost of living was somehow detached from the performance of the economy”. It was a remark that betrayed Mr Osborne’s failure to appreciate that the crisis is not merely cyclical (a problem exacerbated by his strategy of austerity), but structural. It was in 2003, long before the crash, that wages for 11 million earners began to stagnate.

Aside from a pledge to freeze fuel duty until 2015, the Tories had nothing significant to say in Manchester on the question of living standards. The most important announcements were the early introduction of the Help to Buy scheme and Mr Osborne’s commitment to achieve a Budget surplus by the end of the next parliament, both of which risk further depressing incomes. By inflating demand without addressing the fundamental problem of supply, Help to Buy will make housing less affordable, while Mr Osborne’s promise of a balanced Budget is likely to be met by imposing even greater cuts to benefits and services for the poorest. The Chancellor’s ideological fixation with the public finances ignores the greater crisis in voters’ finances.

On the fringes of the party, there is much good thinking. The Conservative campaign group Renewal, which aims to broaden the party’s appeal among northern, working-class and ethnic-minority voters, published a pledge card calling for the building of a million new homes over the course of the next parliament, a significant increase in the minimum wage, a “cost of living test” for all legislation and action against “rip-off companies”. However, there is as yet little sign that the Conservative leadership is prepared to embrace the kind of reformist, centrist agenda that secured Angela Merkel’s re-election in Germany.

The Tories’ error – compounded by the Prime Minister in his conference speech on Wednesday 2 October –has been to mistake the views of the strident right-wing press for those of the majority of the British public and to dismiss sensible calls for a more responsible capitalism as unreconstructed socialism.

George Osborne and Michael Gove listen to speeches at the Conservative conference in Manchester. Photograph: Getty Images.

This article first appeared in the 07 October 2013 issue of the New Statesman, The last days of Nelson Mandela

Getty Images.
Show Hide image

Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.