6 October 2021

Leader: Back to the future

The choice posed by Boris Johnson between higher wages and labour shortages is a false one.

At the 2019 general election, as the Conservatives campaigned against Jeremy Corbyn’s Labour Party, the Tories repeatedly invoked the spectre of the pre-Thatcherite 1970s as a warning of what might befall Britain. Yet it is now the Tories themselves who stand accused of reviving this maligned decade.

As Helen Thompson, professor of political economy at Cambridge University, writes on page 11, energy shortages and rising inflation in Britain make “the parallels appear obvious”. The oil shock of the 1970s led the price of a barrel of crude to rise from $3 to $12. This year, wholesale gas prices in the UK have similarly quadrupled – leading to the collapse of 12 energy suppliers. Fifteen million households have seen their energy bills rise by £139 to £1,277 a year. As Greg Jackson, the CEO of Octopus Energy, noted in an interview published on newstatesman.com: “We’re in a double crisis now: a cost crisis, and a carbon crisis.”

People’s living standards have been squeezed for much of the past decade, but households now face dangerous new threats. Petrol prices have risen to their highest level since 2013 owing to a chronic shortage of lorry drivers. Rents and house prices are increasing at their fastest rate for a decade. Universal Credit payments have been cut by £20 a week (or £1,040 a year). The British government’s furlough scheme, which continued to provide 1.6 million people with 80 per cent of their pre-pandemic salaries, has now ended. From April 2022, National Insurance contributions will rise by 1.25 percentage points, taking the tax burden to its highest level since the Second World War.

Those on the median full-time salary of £31,461, and others on far lower incomes, will soon feel the chill winds of austerity. Boris Johnson has sought to put a positive spin on such woes, as he invariably does. Confronted by labour shortages, the Prime Minister has implored businesses to pay staff more and has argued that the UK is transitioning into a post-Brexit “high-wage, high-skill economy”.

Britain – under both Labour and Conservative governments – has long been over-reliant on low-cost workers. The so-called jobs boom of recent years disguised the structural weaknesses of the British labour market: a lack of training, investment and productivity. Two-thirds of the growth in employment from 2010 onwards was accounted for by self-employment, zero-hours contracts and agency work.

To its credit, the government has increased infrastructure investment to its highest level as a share of GDP since the 1970s. But Mr Johnson cannot cast the chaos of recent weeks as part of some economic masterplan. Having failed to prepare for the challenges posed by Brexit and the end of free movement of labour, the government is belatedly reacting to them.

After ignoring industry warnings for months, it eventually announced temporary visas for 5,000 heavy goods vehicle drivers and 5,500 poultry workers. But as of 5 October, only 127 lorry drivers from overseas had applied. A more astute government would have invested in free training for HGV licences not just months but years in advance. The choice posed by Mr Johnson between higher wages and labour shortages is a false one. Improved workers’ rights could help meet both objectives.

Unlike the enfeebled Labour governments of the 1970s, Mr Johnson’s party is strong: the Conservatives command a House of Commons majority of 82 seats and maintain a consistent opinion poll lead as Labour struggles to win the public’s trust.

But the government cannot control global supply chains or energy demand, and it has made avoidable choices: though Britain already has one of the least generous welfare states in Europe, it has chosen to cut Universal Credit at this time of challenge and difficulty for many. Though UK house prices have increased by 166 per cent in real terms since the 1970s, ministers have chosen to tax work, rather than wealth, to fund social care.

Faced with the aftershocks of the Covid pandemic, the inevitable disruption of Brexit, the UK’s £2.2trn national debt and a divided opposition, voters may be prepared to tolerate a new era of austerity. But the government must do more than insist a new economic model is being born – it must show it has a plan to deliver one.