After weeks of briefings we are braced for a “cost of living” budget tomorrow. That is unsurprising – it is almost always voters’ top concern. The Chancellor has to respond. But this must go further than short-term measures to cut bills. Our cost-of-living crisis is driven by a crisis of production – something recognised by post-war politicians but lost in recent decades.
From today’s vantage point, the post-war settlement appears one of remarkable contentment. Years of plentiful growth, rising living standards, a time when prime ministers could say we had “never had it so good”. But that wasn’t always how we remembered it. Until recently it was an era much decried, a time of soggy statism culminating in the “winter of discontent”. Yet in Westminster today, the post-war period is much more likely to be viewed with awe. Now, at a time when we can’t get anything done, we wonder: how on earth did we build the world’s first civil nuclear programme, a vast motorway network and “homes for heroes”, all from the rubble of war?
Those achievements were underpinned by a deep concern with where goods are made, a national politics of production. But following the so-called “collapse” of the post-war consensus in the 1970s, the political classes lost interest. New digital technologies were embraced instead. These would liberate us from the grubby business of making things, which often involved things they disliked, such as trade unions. In this post-material fantasy, we would live in an online ether, liberated from the constraints of scarcity – that age-old driver of conflict.
Such dreams have not come to pass. Computers need chips – which is why Nvidia is now the world’s most valuable company, and chips need a vast array of raw materials, as Ed Conway describes in Material World. Britain’s lack of productive capacity has left us exposed to the energy crisis almost unlike other countries, a major factor in our cost-of-living crisis. Stuff matters, it seems. Inspired by post-material fantasies, we pursued an economic dream has cost us a fortune; the “knowledge economy”. Some imagined a world in which capital would be replaced by human capital in a new “knowledge economy”. Workers would own the means of production, with capitalism ceasing to exist in any recognisable form. Where you lived wouldn’t matter in a “log on” economy; with the right skills and qualifications, anyone could find gainful employment.
Much like post-materialism, this thesis hasn’t aged very well. Thomas Friedman famously said the world was flat; it turns out to be anything but. Geography has become more important for economic destiny, with regional inequalities widening and new divisions opening, between a small number of “global cities” and everywhere else. And it is in the “everywhere else” that you find the worst health and highest levels of unemployment, driving high demand for public service and welfare spending, partly why taxes will rise in the Budget. We have condemned whole swathes of our country and are now being faced with an unenviable bill.
Where do we go from here? The good news is that a new generation of thinkers and policy analysts do not suffer from such delusions. Internationally, the OECD and other “establishment” policy organisations have been writing about the return of industrial policy for some time. The new consensus in US political economy puts re-industrialisation at its heart, whether Biden’s Made in America or Trump’s tariffs.
These ideas are reflected in this Labour government’s boldest moments: the decision to cut foreign aid spending to boost defence spending and create “good jobs” in Britain’s heartland, or the government taking partial control of British Steel. Yet such moments have been relatively rare. The government’s industrial strategy was a missed opportunity, too often reflecting an exceptionally stubborn view that we must “double down” on services rather than manufacturing. This would be madness, only overheating our few successful cities and offering thin gruel to the post-industrial periphery.
Addressing this will require a significant shift in what the state is spending. Today, because of the destruction of austerity and the withering of our industrial base, we are paying people not to work. This must be turned on its head, and the state must get back into the business of subsidising and protecting industrial businesses. That would be a genuine industrial strategy. A new “Buy British” campaign would offer much-needed clarity to the government’s economic agenda. This should span public procurement, using our post-Brexit freedoms to define a much more preferential buying regime for British firms. A genuinely “industrial” strategy should give clear preferential treatment to British firms and seek to develop a new wave of “national champions”. But it should go beyond that, inspiring a new generation of patriotic consumers.
This will come at a cost. British suppliers might be more expensive, for the state as purchaser and for citizens as consumer. Higher taxes will need to pay for a national reconstruction of the ex-industrial periphery; the places that built this country and powered our industrial evolution. Firms and shareholders will have to focus on long term investment not short-term profitability to help rebuild the shattered periphery; this is a multi-decade developmental project, akin to German reunification or South Korea’s development miracle.
But there is no pain-free way cure for our nation’s sickness. We have spent and borrowed too much, saved and invested too little. We have a “cost of living” crisis because our costs of production are so high due to the weakness of our national industrial base. Reversing these trends requires a return to the politics of production. There is no easy way out.
If that sounds a hard sell, consider the following. Britain was once the workshop of the world, and we are deeply proud of our productive past. Our industrial heritage is ingrained in our cultural DNA. From The Full Monty to Our Friends in the North, much of our nation’s favourite TV, films and literature put our industrial history front and centre. It’s no surprise Birmingham City’s recently announced stadium development plans centre on 12 enormous chimneys; much more than a nod to the city’s proud past. If anything moves the British people, it’s this.
It’s also speaks directly to the ex-industrial periphery, places far from Westminster that are today setting its agenda. It’s impossible to understand these places without reference to de-industrialisation. Yet this is a phrase rarely heard in Westminster, with politicians preferring abstract notions like “growth” or “instability”.
It’s such a common story: a town, village or estate built to serve local industry, often coal mining, shipbuilding or steel making. Over time, this industry failed to be protected in the face of rising global competition and rapidly shed jobs that were never replaced. Residents’ lives were scarred for generations, robbing them of dignity and purpose. This is such a compelling, clear narrative – one that gets to the heart of everyday life for millions in this country.
At times this year, Farage has attempted to directly channel that energy. Visiting Port Talbot in Wales, he called for the return of blast furnaces. Visiting Scunthorpe, he called for the nationalisation of British Steel. Yet he is now crab walking away from re-industrialisation, recently calling for greater de-regulation in the City of London. This presents enormous space for the government at a time when the party is still figuring out how to land a punch on Reform. Indeed, it is space recently occupied by Labour itself. In Opposition, the Chancellor made a passionate case to “Buy British” under the banner of her “Buy, Make, Sell” agenda. This politics of production must be revisited, before Farage recognises the error of his Thatcherite U-turn. The Budget tomorrow would be a good place to start.
[Further reading: Rachel Reeves has a choice]
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