In one of the most famous passages from his most famous book, the 1936 General Theory, John Maynard Keynes questioned the purely mathematical basis of economics: “Our decisions to do something positive… can only be taken as a result of animal spirits – of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”
In essence, he was talking about consumer confidence, which according to the data company GfK is now on the rise in Britain – as is the pound. We have had more than a week now of low political blows being traded following the Autumn Statement. Jeremy Hunt, the Chancellor, is accused of laying a series of economic traps for a future Labour government, with impossible and unsustainable spending plans; Labour’s Rachel Reeves is staying policy-light, insisting voters think about whether they are better or worse off after 13 years of Tory misrule.
For uncommitted voters, I suspect all of it seems like familiar, even cynical, positioning – the kind of manoeuvring that gives politics a bad name.
Yet below the surface, where the animal spirits swell, an interesting choice about our national future is taking shape.
Hunt and Reeves agree that the finances are incredibly tight. They are equally worried about post-pandemic worklessness. They agree that any decent future requires better growth.
Without growth, a future Tory government, presumably going through its 19th leadership battle, would be presiding over a dilapidated and despairing country. Without growth, a Starmer Labour government would soon be haemorrhaging support and belief.
As Keynes pointed out, action in the real economy is not purely a mathematical response but a matter of how we feel. We grow or fail dependent on millions of individual decisions not to work; to use company profits to buy a country home, not new equipment; to hire and train new workers, or not to; to remortgage for a start-up, or to flinch from the risk.
But these animal spirits are inflamed or dampened by national morale and that is about politics. From the post-Brexit chaos in Westminster, through Johnson and Covid to the Truss explosion, morale has, unsurprisingly, nosedived. Many polls and surveys show this: a characteristic one from Ipsos last year showed seven in ten people agreeing that the UK is in decline, with only one in ten disagreeing.
That’s terrible. But investment, which leads to growth, needs consistency. The real competition is the one to persuade business about who has a more credible, long-term and consistent idea of where the country is going. That might seem airily abstract but it is brutally material.
On Monday 27 November, at his global investment summit at Hampton Court Palace, Rishi Sunak announced that major companies had committed £29.5bn in new UK projects and capital, triple the money raised at the last summit in 2021 (got that, Boris?) and creating, according to the government, “thousands of jobs across the UK in our most innovative sectors, including tech, life sciences, renewables, housing and infrastructure”.
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Good news: but even here, political instability remains an issue. The government is also struggling to find international investment for the Sizewell C nuclear plant in Suffolk and is reportedly now trying Abu Dhabi after the withdrawal of Chinese investment, which cost the British taxpayer as much as £100m. But this means betting on future Tory policy.
Political stability is everything. And what is this? On that very same Monday morning at the Ernst & Young headquarters near London Bridge, Keir Starmer and Rachel Reeves were hosting a business breakfast for bosses from Honda, EDF, Barclays, Blackstone, Toyota, the Washington Post and more.
The conversations at London Bridge and Hampton Court will have been very different. The Conservatives will highlight the £11bn-a-year “full expensing” of capital allowances tax break announced by Hunt in his Autumn Statement and high-value migration visas: in their world, the market will, ineluctably, bring the investment back and restart growth, currently forecast to flatline in the next few years.
Keir Starmer’s pitch is very different. It’s closely based on “Bidenomics” but begins with political assumptions. All those CEOs came to meet him and Reeves because they can read the polling and expect Labour to be in power, perhaps for a decade.
Of course, they are not going to turn down an invitation from the British Prime Minister, but… hmm… candidly, how likely is a stable Sunak administration by 2026? Even if the Tories were in office, wouldn’t it be yet another endless factional fight between right and very-right? So let’s have breakfast. To be clear, what was happening on that dank, chilly November day was Power making a beauty parade in front of Wealth. Beyond that, the Labour difference would be an industrial strategy pursued without deviation for year after year, clearing blockages in the planning system and promising no further increases in taxation – the stability that business planners crave.
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Starmer is being presented consistently as a prime-minister-in-waiting – he will be at the Cop28 climate conference in Dubai, bidding for green investment, for instance. The Conservatives have concentrated their economic counter-attack on Labour’s promise to invest £28bn a year in green energy and the net zero industrial revolution. Here too, Reeves is trying hard to avoid presenting a target. For one thing, as Starmer’s office points out, the original green pledge in September 2021 included money already being spent by the Tory government, which now amounts to £8bn-10bn. So it isn’t “£28bn” – more like £18bn-20bn a year. And the money flows in only towards the middle years of a Labour government, by which time, Reeves hopes and expects, growth will have properly restarted.
Interestingly, Ed Miliband, the shadow minister in charge of the green investment revolution, doesn’t contest any of this. Knowing that Labour must show in its early years, not just tell, he has a three-point plan. It involves announcing policy on specific technologies such as green hydrogen to “crowd in” early private investment; using the early launch of Great British Energy, Labour’s proposed publicly owned green energy company, to advertise a route map to lower domestic prices; and unrolling a big programme of insulation and retrofitting of homes. As with clearing the planning system to allow faster connections of renewable-energy projects to the electricity grid, none of this is very expensive: the big-ticket investments come later.
Because of the damage done to the public realm in the past 13 years, the early years of a Labour government would inevitably feel like a trudge, not a revolution. But in time, if growth comes, the atmosphere – the animal spirits – will revive. Nobody discusses these things, but it seems likely to me that eventually some form of wealth tax, perhaps an increase in capital gains tax, will become unavoidable, even popular. As a country, we tax work too much and accumulated wealth too little, and this is a truth increasingly noticed by younger voters.
One day we can also expect an honest acknowledgement of the case for returning to the single market – not the EU – in a dynamic alignment deal on regulations. This would be a mildly humiliating “rule-takers” agreement, but if we want strong economic growth, it may be necessary.
For the Tories, the paradox is that, to improve their political position, they need a flaming spirit of optimism and business investment; yet that optimism depends upon the perception of their political status, which remains dire. Even after the Autumn Statement, fire cannot be summoned from mud.
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This article appears in the 29 Nov 2023 issue of the New Statesman, Being Jewish Now