The shadow chancellor Anneliese Dodds’s Mais Lecture was the first systematic effort by a senior British politician to lay out a recognisably social democratic response to the pandemic. It was a detailed, analytical speech, which set out the major challenges awaiting the economy in the years ahead, pointedly placing the environmental disintegration we face at their centre, and made the case for an interventionist government. The task for Dodds and the shadow Treasury team will be to turn this closely argued analysis into the popular and radical economic programme needed to meet these challenges.
Earning the sort of Financial Times plaudits other Labour shadow chancellors would give their Liverpool season tickets for, Dodds’s comms team will no doubt be very pleased with the FT’s reports of her “fiscal responsibility” on the back of the speech. But the reality is that the fiscal approach Dodds laid out is strikingly similar to the one adopted by her predecessor, John McDonnell, shortly after he arrived in office, right down to the timing of the announcement, which sensibly came well ahead of any expected election.
Citing the Institute for Fiscal Studies, Dodds suggested a fiscal rule for Labour that would set a “rolling, forward-looking target of current budget balance which allows the government to borrow for additional investment spend when interest rates are low, and which provides flexibility during times of economic shock”. This is remarkably close to a one-sentence description of McDonnell’s 2016 “Fiscal Credibility Rule”, which also set out a rolling target for day-to-day spending while leaving spending on capital – buildings, infrastructure, R&D, and so on – almost unconstrained.
There is one exception: McDonnell’s government debt to GDP target has been dropped, making Dodds, ironically, somewhat looser on fiscal policy than Labour was in the 2017 election. So this is not a mandate for austerity but exactly the opposite, with Dodds making the case for expanded public spending.
This reflects a growing consensus, spanning the IMF to the OECD to the Financial Times, on the need for higher levels of government spending in a world ravaged by Covid-19. The challenge is financing it: either through taxes, borrowing or, as we are seeing, monetary financing. The Bank of England has increased the volume of money it issues under quantitative easing (QE) virtually in lockstep with increases in Treasury spending – all but financing that spending by printing money, with a few tweaks in the process to spare everyone’s blushes.
The immediate danger from this isn’t hyperinflation, as some still fantasise, but – exactly as Dodds says – is rather that issuing money on this scale and in this form is seriously warping our economy, making the rich steadily richer, distorting investment decisions and potentially contributing to wider economic instability. Leaning more heavily on conventional fiscal policy is the smart thing for governments to do. And to match this, Dodds will need to abandon her reticence about insisting on tax rises for the wealthiest.
[See also: Stephen Bush on how Anneliese Dodds’ Mais Lecture articulates Labour’s new approach to economics]
But the most interesting parts of the shadow chancellor’s thinking are found not in the laying out of the consensus view on public spending, or in the calls for greater rights at work and an industrial strategy. They are in placing resilience at the centre of Labour’s approach to the economy, and the recognition that this pandemic is unlikely to be the last environmental calamity we face, from further pandemics to extreme weather.
This emphasis is significant, since it echoes the turn made by Chancellor Rishi Sunak, who last autumn suggested that Covid-19 is not a short, sharp shock, but part of a longer-term malaise. Both are right: Covid is not going away anytime soon, even with a vaccine. The chief medical officer has warned of future lockdowns in the winter months and BioNTech’s chief executive suspects it will be a decade before we get the all-clear. Even if we do, the pace of environmental decline is accelerating, presaging fresh instability.
The Conservatives have not visibly adapted to the “new normal”, with Boris Johnson seemingly still clinging to the belief that it will all be over by Easter, summer, Christmas and now Easter again, or, alternatively, simply claiming (as Sunak did) that the market alone will determine which jobs and businesses are “viable”. But the left has not necessarily adapted to it either. “Zero Covid” is a good short-term aim, but neither it nor a net-zero-focused Green New Deal are designed for a future in which many economic and social activities remain curtailed and average growth is permanently reduced.
By making resilience, or security, a central theme of Labour’s economic programme, Dodds has opened up a space that might usefully stretch beyond technocratic social democracy, and into some of the core ideas the wider left has been highlighting for years: distributed and shared ownership as a way to build more resilient systems, from finance to manufacturing; universal provision, including a universal basic income and free broadband, as the best way to fairly preserve security for all.
As vaccines ease the public health emergency, it’s likely that the Tories will get to their own version of this economic programme. Johnson has indicated one route, saying the state will “put its arms” around workers during the crisis. But in typical Tory style, this is likely to be security through exclusion: protection for a minority of the workforce, as in Sunak’s abandoned Job Retention Scheme, insurance only for those who can afford it, and fences and walls built to keep out the rest.
Labour should counter this degraded version with its own expansive vision of security for all, based on the universal provision of goods and services and more egalitarian ownership models. Dodds has begun to lay the foundations for a new approach, but they are only the foundations. Far bigger challenges await.