We face a cost-of-living-crisis that could tank the economy, plus a geopolitical crisis that could end four decades of globalisation and plunge the continent into war. Set against either of these threats, throwing £6bn at low-income workers by raising the National Insurance (NI) threshold seems bizarre.
It won’t help those hardest hit by household energy bills; it won’t fully offset the £12bn Rishi Sunak plans to raise through NI to repair NHS finances. It looks – as with the promised penny off income tax in 2024 – simply like an electoral bribe. Stick with us and we will fix things eventually, even if our current actions betray no understanding of what we actually need to fix.
Sunak’s Spring Statement was designed to fix the problem of a trailing poll lead, not the problem of looming penury for working-class families. Nor did it address the need to rapidly decarbonise the economy or to re-equip the armed forces to deter a shooting war.
What’s the strategic problem facing Britain? The collapse of the premise on which Brexit was based. We cut ourselves off from the European economy at the very moment when the world economy began to break up into competing political systems and rival trading blocs.
The illusion was that, with our low-productivity, low-wage, low-security economy, Britain could duck and weave between the major powers, carving out a niche for deregulated finance, privatised energy and the right to sack your workforce over Zoom.
In the post-Covid recovery, we have one of the most vulnerable economies in the developed world to energy and food inflation; and a workforce whose absence of labour rights makes it impossible for them to maintain their real wages through bargaining.
As inflation soars above 6 per cent, the Bank of England stands helpless and the Office for Budget Responsibility slashes its growth forecast from 6 per cent to 3.8 per cent, we are facing the biggest single-year slump in living standards since the 1950s. And the aftershocks from the Ukraine invasion can only make it worse.
What we need is not just a different chancellor but regime change.
In circumstances of high geopolitical tension, where oil and gas prices are subject to manipulation, and security of supply is in question, it is simply not possible to pursue the aims of affordability, security and decarbonisation through a privatised and marketised energy system.
While Labour’s shadow chancellor Rachel Reeves bangs away at the idea of a windfall tax to fund subsidies on household bills, we must recognise that, even as a palliative measure, it will not be enough. We are going to need a nationalised energy system and a state-funded price cap before this is over. The sooner the Labour front bench realises this, and starts making the case for a national energy plan to the British people, the better.
Sunak, even now, keeps crooning the lullaby of the small state: tax cuts are a-coming if only the high-wage, high-productivity dream will materialise. We need to dispense with this folly. Western societies have entered a period of systemic conflict with Russia, a petrostate armed to the teeth and prepared to menace us with nuclear and chemical weapons.
Nobody in Whitehall wants to say it, beyond a few war hawks on the Tory right, but there will have to be big spending increases to fund rearmament and to signal to Vladimir Putin that he cannot stamp on any more sovereign states he doesn’t like.
To double defence spending, mirroring Germany’s boost, would not necessarily mean raising expenditure to 5 per cent (as the Foreign Secretary Liz Truss has suggested). If it was done as in the America of Franklin Delano Roosevelt, through a state-directed and financed plan, it could have a positive multiplier effect, delivering the high-skilled jobs and high-productivity workplaces we have so far failed to achieve.
All Sunak has achieved today (23 March) is rearrange the deckchairs of an economy heading for the iceberg of energy crunch and systemic conflict, while delivering a little narcissistic tap dance to brighten the proceedings. He couldn’t even bring himself to drop one iota of extra funding into defence, despite the obvious need for it, and the potential electoral upside.
The demands of decarbonisation and of looming conflict mean we’re going to need a bigger state, not an income tax cut in 2024. We’re going to need a more directive state, that owns and controls the energy core of the country, and can rapidly invest in a mixture of nuclear and renewables. Price control – half-hearted and ineffective in the domestic energy market – may have to become full blown across rents, food and energy. And real wages will have to rise.
Labour’s opportunity is clear. To be the party that opposes real-wage cuts, solves the energy crunch at the expense of the private owners, and rearms the country through a programme of manufacturing and R&D investment.
Will it take that opportunity? Or go on cowering in fear at what the elderly Red Wall focus groups might say. If it does the latter, it will leave the way open for a coalition of forces on the Tory right.
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