16 November 2022

Escaping the austerity trap

Inflation is at a 40-year high and the UK economy has stalled – now is Labour’s moment to lead a once-in-a-century change.

By Andrew Marr

Can we make it through what’s coming next? “Horrible decisions,” said Jeremy Hunt. “Eye-wateringly difficult” choices, the Chancellor told us. We were well warned. This is 2022, after all, and it’s Britain, after all: what the markets demand, the markets get.

But the British public realm is weak and ground down. Our economy is in recession. Economists mutter about a depression. (Like a recession, children; only longer, deeper, darker, colder.) Is the Chancellor’s shock treatment the essential chemotherapy that blasts away inflation and leads to recovery, or is it so extreme it kills the patient?

The patient, we can all agree, is in poor shape. The patient is knackered (technical term). That’s not just because of Liz Truss, Brexit, or even the past dozen years of Conservative government. It’s because of decades of underfunding of education and science; a biased, skewed geography that prioritises financial services and the south of England over industry and the rest; and, not least, because of a “make your stash and get out quick” culture with its roots deep in English history.

In all of this, our politics has seldom helped. Under both New Labour and the subsequent Tory administrations, the political class has shown little interest in or understanding of the needs of industry in producing real growth across the whole country.

The decline embraces old industry and new. Take cars. Even today, motor manufacturing can provide huge numbers of highly paid and skilled jobs of the kind Britain desperately needs. Go to Sunderland and look at the impact of the Nissan plant, the company lured there by Margaret Thatcher in the mid 1980s, long before “levelling up” was more than a carpenter’s aspiration. Today, the British car industry’s overall numbers are bleak, down from 1.7 million cars made in 2016 to around 850,000 in 2021. Electric vehicles seem to be a future we may buy in to but will not build. BMW’s Mini base in Oxford isn’t where its latest electric models are going; they will be built in Leipzig and in China.

Electric vehicle batteries are central to this future. Across Europe, governments are investing in cutting-edge factories to make them. But not here. Britishvolt, whose planned gigafactory at Blyth in Northumberland was a poster child for Johnson-era levelling up, is on the edge of going under, partly because of waning government interest. (Grant Shapps, are you there?)

All this may seem a long way from the tax rises and spending cuts of Hunt’s Autumn Statement. But it’s all the same story. A country with a healthy industrial base, able to export its way out of trouble, would not be a country experimenting once more with – yes, that word again – austerity.

There was a time when “austerity” sounded almost noble, with its Latin root meaning strict, or without frills. It returned to the British political dictionary around 1947 when Stafford Cripps, Clement Attlee’s chancellor, imposed restrictions on consumption in response to the postwar economic crisis; Britain could no longer live off overseas investments, many of them already sold.

Trying to boost exports, Cripps squeezed travel abroad and almost all kinds of domestic spending. It wasn’t popular but in retrospect became sugared with the “all-in-it-together” idealism of the postwar socialist government. The then Tory chairman, Lord Woolton, acknowledged that the teetotal vegetarian Cripps believed in austerity: “He practises it himself almost as though it was a religious cult. That might be very good for him, but it is of no use to us. He knows nothing about the ordinary fun of life which you and I want… He is a bit of a saint, but we are not apostles of austerity.”

Neither David Cameron nor George Osborne, when they returned the word to public life in 2009-10, was precisely a saint; nor was Tory austerity remotely about everyone being “in it together”. It became code for spending cuts that ravaged local budgets, destroying amenities such as libraries, and raising child poverty.

Part of the message from Rishi Sunak and Hunt is, apparently, that they have learned and will balance the books with tax rises for the better off, alongside a hike in the living wage and special help for the poorest families. This poses a curious problem for the opposition, still way ahead in the opinion polls.

Remember: “the economy”, like austerity, is a political abstraction. The rest of us might just call it life. The economy is how well children learn and the size of their ambitions; it is how well the elderly feel, and how quickly they are treated; it is the variety of shops in the street; it is what we eat, and where we holiday. The economy is the anxiety of going to bed worried about bills. The economy is the homeless, and the renter and the owner cutting back on “frills”. It is the national mood.

The mood is getting worse. Real wages down, unemployment up, inflation the highest it has been for 40 years. Education spending, front-line NHS resources, disposable income, small business bankruptcies, the housing crisis – it is hard to look around and see good news anywhere. A new reduction in spending could feel like the moment of “snap”.

An analysis of the condition of the social safety net by the Christian think tank Theos was released this month. In a joint foreword to it, Gordon Brown and the former Archbishop of Canterbury Rowan Williams wrote: “The shocking reality is that this winter, we are likely to see charities being forced to stop feeding the hungry so they can help the starving, cut back on support to the poorly housed so they can focus on the fast-rising numbers of homeless, and give up on helping the down-at-heel because their priority has to be the destitute.”

If that is the new reality, God help us all. In time, Britain needs an industrial policy that recognises that political and economic heft go hand in hand. Sunak and Hunt hope that talking tough will lead the markets to give them enough scope to spare us the worst. Let’s recognise it for what it is: one heck of a gamble.

For Labour, political choices become harder despite the opinion polls. Let me put this brutally. What’s the point of a social democratic party when the Conservatives are raising taxes on the richer, protecting poorer families, and when investment is constrained?

The question leads directly to the next big policy announcement likely to come from Labour. Soon – early next month – we should finally get its plans for the devolution of economic and political power, which have been gestating for a long time under Brown. The most eye-catching suggestion is that the House of Lords should be abolished and replaced by a chamber of the regions and nations. Numbering some 300 to 320 members, it would be elected on a proportional system yet to be agreed, but on a different timetable from the Commons and with a restricted set of powers written into law. Remaking Westminster to give other parts of Britain a bigger say would be a historic reform of the UK constitution. Objections include its scale and difficulty: is it worth a new government expending so much energy on something most voters may not care much about?

Second, doesn’t it undermine the primacy of the Commons? The idea has alarmed MPs. During votes on proposals for a semi-elected or fully elected Lords in 2003 the Commons voted down the idea of a fully elected second chamber and an 80 per cent elected second chamber, albeit by relatively modest majorities.

Neither Keir Starmer nor his deputy, Angela Rayner, who acquired responsibility for constitutional change after a stand-off with the Labour leader following the 2021 Hartlepool by-election defeat, is deeply interested in the subject. There is scepticism inside the shadow cabinet about voting reform or other constitutional “tinkering”. Tension has been building for months. The big announcement from Starmer has now been delayed three times – though always for good reasons related to Conservative misrule.

But the politics of reform is changing. Years of scandals about Tory donors and cronyism have changed the public mood. At a time when “Westminster bubble” politics is hated, slashing the numbers in the second chamber from 800 unelected people to around 300, voted in to represent regional communities, looks like a refreshing plan for cleaning up the fusty stables.

Political reform also gives Labour an edge at a time when it is harder for the party to be distinctive on tax and spend. Tony Blair cleverly used initiatives such as devolution, Bank of England independence, the creation of a supreme court and restrictions on hereditary peers to give New Labour the gloss of bold reformers. Could Starmer, facing a highly taxed country and unable to offer early public spending hikes, repeat the trick?

Back on Gordon Brown’s home turf, the Labour Party in Scotland no longer sees a reformed second chamber as a problem. The idea of electing more Scots to a different kind of Westminster would show that the SNP didn’t have a monopoly on radicalism.

None of this replaces the need for a new economic deal from Labour; the party has a huge amount of work to do on that. But the recent chaos has made the case for a once-in-a-century change at Westminster and, however obscurely, the politics of the Autumn Statement has pushed it forward too.