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23 December 2021updated 24 Dec 2021 1:58pm

How Boris Johnson has forged a new economic settlement

Despite his incompetence and lack of political convictions, Johnson will be seen by history as a defining economic reformer.

By James Meadway

It has always been Conservative-led administrations that change Britain’s economic course. It was the National Government of the 1930s that forced through the modernisation of Britain’s industrial backbone, with mergers in rail and electricity generation, and that, in London Transport, created the model for future nationalisations. The National Government encouraged the great shift of industrial activity southwards, with critical new industries, such as car manufacturing, spreading across the Midlands and into the south east. And it was then Margaret Thatcher’s government that broke all this up: overseeing the destruction of manufacturing employment, reorganising and privatising the industrial backbone and globalising financial services.

Successful Labour administrations might introduce critically important social legislation, or improve the provision of public services. But none of them, from Clement Attlee to Tony Blair, has ever convincingly altered the consensus on economic management set by the previous Tory-led administration. Attlee’s government (1945-1951) brought railways, coal mines, electricity generation and other critical sectors into public ownership. But public ownership itself made no meaningful difference to the management of these industries. Wartime controls were eased and promises of more radical change, such as land nationalisation, made in the 1945 manifesto, were quietly forgotten.

Blair loudly and eagerly accepted the Thatcherite consensus, including privatisation, minimal taxes for the rich and corporations, and limited economic intervention by government. New Labour in office has achievements to its name. But it did nothing to change the economic fundamentals established by the Tory regime that preceded it.

Boris Johnson himself is presumably unaware of this precedent, but it hardly matters. It is best to think of him as a creature of pure historical chance rather than a determined actor, an opportunist with few motivations beyond crude personal advancement rather than a visionary with ideological commitments. His relationship with his electorate is ruthlessly transactional, and both he and his voters understand this.

But as Machiavelli suggested, a self-involved and heedless despot may be better at performing the necessary tasks of reform than a committed and thoughtful sovereign. By failing to understand fully what he is doing, the clown Prince will walk, step by step, towards the future his whispering consiglieres have devised.

This is not an unusual course for reformers. The mythology of Thatcher is that she arrived in No 10 with a blueprint for neoliberalism in Britain. The reality was a prime minister with some strongly held notions, but no fully formed plan or cabinet majority behind her radicalism, attempting to move forward, continually knocked by events. Her government’s overall direction was clear. The individual steps more uncertain.

Johnson’s lack of political convictions has been his strength. Rescuing the Tories has necessitated severing the party from its Thatcherite inheritance – a job to which Johnson, unlike Theresa May, who appeared to actually believe in things, has been well-suited. The Tory party could gesture in the right direction in 2016 and 2017, hand-wringing about “burning injustices”. They set up a whole department to implement an industrial strategy. But they couldn’t break properly with their hard-wired commitments to spending cuts and free markets.

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It took Johnson’s indifference to political commitments and personal consistency to get the party over the line. If more spending was popular, he would spend more. If Brexit was demanded by his political base, he would become a Leaver. His swiftly executed purge in the summer of 2019 removed malcontents from the parliamentary party, and his demand for a Brexit loyalty pledge disciplined the new intake. His 2019 manifesto was Labour’s 2017 offering, streamlined and stripped of its Corbynite focus on inequality and common ownership: more spending, deliver Brexit. Electoral success and then Brexit were rapidly delivered. Pure electoral calculation gave rise to Johnson’s promises to end austerity and “level up” the country. The result is a government that is planning to spend more as a share of GDP, even excluding Covid expenditure, than Labour before the 2008 crash.

On Brexit, Johnson has had the option to push for a deal prioritising market access over sovereignty. As foreign secretary he spoke of an open, liberal, free-trading “global Britain”. As Prime Minister he has torn up trade agreements and ended freedom of movement. He and his negotiators with the EU have always opted to “take back control” to the fullest extent possible. They have thrown out the EU’s state aid and “level playing field” requirements, and rejected even a sniff of European Court of Justice jurisdiction.

As a result, for the first time in decades, a Westminster government faces only the World Trade Organisation minimum of controls on its capacity to spend and subsidise as it wishes across the economy. A government committed to “levelling up” could exercise these new powers to, for instance, dramatically cut the cost of borrowing for preferred regions, or subsidise local employers, or bend its own spending towards the creation of “national champions” in favoured locations.

And the Treasury is on a tighter leash than ever before. The department squats in the centre of Whitehall, a jealous guardian of its own power, and a black hole for government initiative (the Treasury’s main contribution is to “stop things happening” as a former second permanent secretary put it). It has determined the bias of economic policy for decades, favouring the south east over the rest of the country, and the City over industry.

No prime minister since Harold Wilson has seriously attempted to take the department on, and Wilson’s plans did not survive the confrontation. But although Johnson’s current woes are, in part, the product of his rows with the Treasury, who have briefed and leaked against the PM since the summer, the commitment to £150bn of new spending was won and a new “Levelling Up” ministry established.

Will the new settlement last? Broadly, yes. The hard facts of public expenditure today are simple. An ageing population requires more spending – on pensions and on care. Covid-19 has further driven up the costs of future healthcare and wider provision. And environmental instability, from floods to droughts, will place yet more demands on government budgets in future.

Brexit, meanwhile, is not likely to be significantly reversed. Britain’s post-Brexit prosperity will depend on its ability to use its expanded government powers to support favoured industries in a world increasingly shaped by state-supported companies. Like every other developed country, Britain’s economic future will involve more state spending and more state intervention. Brexit merely reinforces this necessity. Perhaps a future Tory prime minister will push back against some parts of spending, or attempt to cut taxes. But the basic direction will endure.

A canny Labour leadership today would grab this opportunity, in the same way Blair and those around him latched onto Thatcherism in the 1990s: accept what the Tories are doing on the economy – more intervention, more borrowing, more taxes – and use these changed parameters to advance its real priorities. Labour could take the new economic settlement and pursue a decisively more egalitarian version of the same thing.

Whatever happens to him next, Boris Johnson’s place in the history books is assured: not despite his venality, his incompetence, and his lack of political convictions, but because of them, he will come to be seen as a great economic reformer – one of only a handful of prime ministers who can claim the title. We’re all Johnsonites now.

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