We will all be poorer. All? Well, perhaps not a tiny sliver of the super-rich, such as those who have heavily invested in foreign currencies: they are supremely fortunate. But most of us – mortgage-holders, energy-bill payers, public sector workers, normal taxpayers – will be. This collapse is the consequence of decades of British economic underperformance, which was further triggered this autumn by a reckless, tax-slashing, unfunded acceleration into a well-constructed brick wall.
As I write this, Liz Truss survives in Downing Street. She doesn’t deserve to survive. She won’t survive for very long. But that is almost by the way: hers is the failure of an anti-state idea about how the modern world works. It’s the crash-bang-wallop smoking wreckage of the clique of Brexit revolutionaries who had seized the steering wheel.
But the failure of every big idea is an opportunity for the next one. We should see this as being potentially as significant as the shift from the corporatism of the 1970s to the Thatcher revolution that followed.
The next big idea isn’t a new one. It is the patient, slow, mildly egalitarian fabrication of a society that works for most of its citizens, based on the example modelled by many of our northern European neighbours. The shorthand is social democracy.
But a new idea cannot be built on until we understand the death we’ve just witnessed. That was the death of British exceptionalism – the conviction that we are the “best in the world”, a unique people, somehow blessedly outside the constraints of ordinary history, diplomacy or economics.
It’s what Boris Johnson parp-parped on about throughout his premiership, deriding the gloomsters. Exceptionalism was composed of a heady mix of Whig history, modern cultural pride and woozy post-imperialism, topped off by the monarchy. It’s a comforting belief, and even now many people wrap themselves in it. In many ways I felt it too. We have been a lucky people.
But the luck has run out. Remember the Brexiteer predictions that Britain’s economy would soon, freed from Brussels, overtake Germany’s? Mark Carney, the former governor of the Bank of England, told the Financial Times on 14 October: “Put it this way; in 2016 the British economy was 90 per cent the size of Germany’s. Now it is less than 70 per cent.”
Some dispute that evaluation. But Carney also pointed out that average real wages in Britain had not been increasing for a decade, something that last happened when Karl Marx was writing the Communist Manifesto; it is predicted we won’t recover to pre-financial crash levels until 2025. Two lost decades.
It’s important, however, not to plunge too far down a self-hating rabbit hole. Immediately after his dramatic speech on 17 October shredding his predecessor’s mini-Budget, the new Chancellor of the Exchequer, Jeremy Hunt, was right to remind the House of Commons about Britain’s good employment record and the strengths that remain in our economy – such as the City, excellent universities, the science and tech sectors. Yet the long period of relative economic underperformance is the right lens through which to look at the current political collapse.
It was triggered by the immediate causes: bad political judgement, naiveté about markets, personal arrogance and cliquishness. Truss is simply not good enough – not shrewd enough in judgement, not persuasive enough as a communicator – to be prime minister. But this is the failure of an idea that would have collapsed even had Britain been led by better politicians. (See my column in the last issue.)
The idea wasn’t simply that slashing taxes would bring growth. It was that shredding regulations and employment protection while leaning into devil-take-the-hindmost politics will produce a happier society. It’s more American than British and is today’s enemy of social democracy – anti-social plutocracy. The idea wouldn’t have worked even had the Tory party rallied behind Truss – or Pericles, or Moses – and the markets given it the benefit of the doubt this autumn.
It wouldn’t have worked because in a modern society, we share our fates. The pandemic reminded us of how much a prosperous middle manager owes to nurses and care-home workers, cleaners and refuse collectors. And it wouldn’t have worked because modern economies depend upon well-educated, skilled workforces – and you don’t get those if children go hungry in school, and technical skills are sneered at, and people feel they can’t afford to be teachers.
The idea also wouldn’t have worked because a society based only on financial competition is a miserable land. But this crash immediately opens the way for its replacement. Politics, like nature, abhors a vacuum.
Before turning to the alternative, let’s remind ourselves of the job Hunt has been given. He speaks candidly of the “eye-wateringly difficult decisions”. He might have said impossible ones.
The Institute for Fiscal Studies (IFS) has warned that to plug what seems to be roughly a £70bn black hole in the public finances – the real figure will depend on growth – the government needs to make 15 per cent departmental spending cuts everywhere except in health and defence. Hunt has talked about “more efficiencies” – but what would those IFS figures actually mean?
[See also: A bonfire of delusions]
Assuming Hunt protects welfare budgets (he has talked repeatedly about being a compassionate Conservative, which must be code for something) this means drastic cuts in, for example, education. The department could lose more than £10bn after ten years of cuts that caused spending per pupil to fall by 9 per cent. It could mean cuts of £3.2bn for local government, £4.4bn for transport – would that spell the end for HS2? – and about the same for business and energy, when so many businesses are on the edge, and £6.3bn taken off the Scottish budget. And on and on…
Austerity again? But it would arrive at the time of rising inflation, when millions of people are fearful about affording their mortgages. And, not least, at a time when the government has lost its authority. It seems to me that, deploying all his considerable skills of persuasion, Hunt has very little chance of getting that kind of radical restructuring through this parliament. And if he did, the lid would blow off many communities. What would that mean? Let’s hope we don’t find out.
As for Truss, she could go at any time. The extreme polls at the moment – one predicted the Tories would return from a general election with 22 seats – are producing a hysterical mood in the Tory party. The slightest sign of improvement means that backbenchers may believe it’s possible to hold their seats (but with a different leader). So if things get better for the Conservatives, they get worse for her.
Whether by a truncated party vote or a parliamentary putsch, she can be removed briskly. The biggest problem is who replaces her: Hunt himself, now looking like the real prime minister, would have to do a deal with the merchant prince over the water, Rishi Sunak, and the increasingly self-assertive Penny Mordant. Even in these extreme days, there isn’t much of an “after you, Claude” mood around them.
The Labour Party, meanwhile, has a huge job ahead, and some politically difficult decisions coming imminently. Clutching its new brand as the fiscally responsible party, how does it deal with the huge spending cuts coming? If it is for restraint, how does it respond to demands for better public sector pay? If Hunt swipes Labour’s windfall taxes idea (first called for by the Liberal Democrats, as it happens), where is the opposition wriggle room for reinvestment?
Beyond that Labour has to prepare for government. That means putting in the hard yards in education, green investment and national infrastructure, during what will be years of great social tension. At the next general election Labour will not be able to offer frustrated people an immediately better life. It will take on the current disaster, a far worse inheritance than the one Harold Wilson struggled with in 1964, and infinitely worse than Tony Blair’s in 1997.
Keir Starmer was clear in his conference speech that some good policies will have to wait. What Labour can offer is a plausible road ahead – or, in short, hope. But people will only be prepared to put off good times if they believe a short-term sacrifice will produce results. And this means, in turn, that Labour has an absolute national duty to produce its own plan for growth – detailed, costed, realistic and timetabled. It would be the kind of focus on training and investment that every other, more successful, social democratic country has deployed. No more vainglorious exceptionalism. No more heavy leaning on the City to fund social progress.
But there is a final part of this which is both politically dangerous and economically essential. Starmer has ruled out Britain rejoining the EU and nobody sane ever wants to go through that kind of referendum again. But a future Labour government must, as a central part of its rebuilding programme, open talks for a much more generous trade arrangement with the EU – perhaps up to an association agreement.
For the time being, the EU doesn’t want us back and a very large part of the British electorate never wants to go back. But having these barriers, this friction between a trading nation and its largest market, is damaging. Labour needs to find the courage to state the obvious. Starmer has never felt there was the political space for that, but this huge crisis gives him that possibility. The biggest casualty of the Brexiteer revolutionaries’ mishandling of Britain deserves to be their version of Brexit.
This article appears in the 19 Oct 2022 issue of the New Statesman, State of Emergency