Tuesday, 27 September 2022

Missing an opportunity


One of the ‘successes’ of the Tories over the past four decades has been implanting the idea that the government’s finances are like those of a household; spending should mostly be limited by income and any borrowing should be as short term as possible and repaid as rapidly as possible. It’s always been utter nonsense, and it’s not a paradigm that they’ve ever stuck to themselves, but they’ve succeeded in making it the starting point for all political discussion of economics under which all parties (except the Tories themselves, of course) are obliged to answer the question ‘how will you pay for it?’ in relation to each and every spending commitment, and then ridiculed for any failure to provide an 'acceptable' response. It’s an ideology which last week’s budget completely abandoned, with the results that we’ve seen on the financial markets, and whilst allowing itself to be seduced by the argument was not exactly a brilliant move by the Labour Party, being seen to be the upholders of what is essentially a Thatcherite position which the government have abandoned in favour of a trip to fantasy island will probably do Labour no harm in the short term. Appearing to be the adults in the room is not exactly a bad position to be in.

And yet… Their continued adherence to the Thatcherite view of the economy does them no favours in the longer term, and helps to sustain the household comparison. At a minor level, it leaves them open to a charge of inconsistency. For example, from the ‘household’ perspective, Labour's promise to reverse the unfunded abolition of the 45% rate of income tax and then use the ‘extra’ money for increasing expenditure in the NHS looks an awful lot like spending the same money twice. The open abandonment by the Tories of the position which they have imposed on everyone else for decades could – and should – be a real opportunity to have a serious discussion with the electorate about the way the economy really works. They could instead be spelling out that the problem isn’t the extent of Kwarteng’s borrowing per se, it’s that he’s using the borrowed money to reduce taxes on the rich: a move which few respectable economists believe will generate anything like the assumed level of growth which is required to make the numbers add up. Had he instead announced that he would be borrowing consistently more for some years to come in order to invest in infrastructure (which most economists would agree does contribute to growth), we would probably not have seen the panic which set in in the financial markets. Failure to even broach the argument that it’s not about borrowing, but how it’s used, is a serious constraint on Labour’s freedom to promise the investment which we need.

It's a failure which is understandable in a sense; in an environment where politics has been reduced to simple slogans, preferably no longer then three words long, and against a backdrop where the household analogy has become established ‘truth’, it’s a very difficult argument to make. And to paraphrase Bonaparte somewhat, “never divert attention from your enemy when he’s making a mistake”. They don’t need to win the argument about the ‘right kind of borrowing’ to win an election which the Tories seem determined to lose, so why get bogged down in a debate which many may not understand? It’s short term thinking, though: after they win an election, how radical can they be in economic terms if the ground hasn’t been prepared in advance? Most worrying of all is the suspicion that they don’t really want to be radical; they’ll be happy just to be ‘in power’ and carry on with the sort of economic policies which (Truss and Kwarteng might be asking some of the right questions here, even if they’ve come up with the wrong answers) have led us to where we are.

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