31 January 2019

Theresa May’s plan to bribe Labour MPs to back Brexit shows austerity was always a choice

Having long insisted that there is no money left, the Conservatives are always able to find resources for their political needs.

By Grace Blakeley

Theresa May leaves 10 Downing Street on 30 January 2019. (Photo By Getty Images)

Theresa May has emerged from the events of the last week appearing more secure than she has for months. The passage of the Brady amendment – with the support of 14 Labour MPs – suggests that if May can secure “alternative arrangements” to the Irish backstop, her Brexit deal might just pass the House of Commons next month.

Two obstacles currently stand in her way. First, she needs to agree what such alternative arrangements would be with the European Union. The European Commission has expressed its unwillingness to reopen the withdrawal agreement negotiated last year, but the balance of power is held by the European Council – comprised of the leaders of the EU’s member states. If they can be convinced to support an alternative to the backstop (Ireland and others are insistent that they will not), then May might prevail.

The second problem is that the Prime Minister needs the backing of enough MPs to ensure that her amended bill can pass (having previously been defeated by a record 230-vote margin). A split appears to have emerged amongst the hard Brexiteers, with some, led by Jacob Rees-Mogg, still championing a no-deal Brexit, and others fearful that, if May’s deal doesn’t pass, they might be denied any Brexit at all.

The passage of the withdrawal agreement requires the backing of enough Labour MPs to compensate for the opposition of Rees-Mogg and his allies. In a bid to secure opposition support, May is reportedly planning to offer Labour MPs local investment in Leave-voting areas such as former mining communities.

This represents the most desperate attempt at pork-barrel politics since the Prime Minister bought the parliamentary backing of the DUP for £1bn after the 2017 election. But the problem with this strategy is not merely that it is shameless bribery, it is that the Conservatives have spent the last decade telling the British public that there isn’t any money left.

The government, just like a household, has a budget, determined by its income in the form of taxes. If it runs a deficit, then this means it will have to pay the money back – with interest – further down the line. The moral of the story is that we must tighten our belts now to save the next generation from the burden of our profligacy.

Yet today one government official is reported to have remarked that “there’s always money for a bridge here, a new road there, or whatever.” How can the Conservatives justify such a volte-face?

From an economic perspective, the household analogy has always been nonsense. Whilst it may make for a moralistic narrative, states are not comparable to households because they are not revenue-constrained. The reason that there is always money for a bridge here and a new road there is that the government can either borrow or create new money through a central bank – as the Bank of England has done over the last decade through its quantitative easing programme – in order to build one.

Over the longer term, if chosen wisely, these projects will expand the size of the economy, increasing future tax revenues by more than the cost of the initial spend. Investing in infrastructure – especially if the procurement process is well-managed – can provide a powerful stimulus to a region’s economy: creating jobs, boosting incomes, and increasing business investment today, as well as increasing the amount the region will be able to produce tomorrow.

This is not to suggest that the government can endlessly borrow or create money without any negative consequences. Continuously high government spending would eventually drive up inflation. This is one reason why simply changing fiscal policy won’t be enough to solve the UK deep-rooted economic problems.

But we are far away from such a scenario today. Government spending and private investment are both low by historic standards and private consumption seems to have peaked – at this juncture, the UK economy needs a boost from the state.

May’s proposals, then, are perfectly justifiable in Keynesian economic terms. The problem she faces is a political one. The Conservatives have used the financial crisis as an excuse to drive down the living standards of workers, whilst driving up asset prices for the wealthy. The austerity agenda remains a central component of this political economic project – and a bridge here and a road there might just critically undermine it.