Now Is the Time for Labour to Completely Reject Austerity
by Aaron Bastani
13 May 2020
It’s deeply ironic that, at the very moment Jeremy Corbyn’s leadership ended, a supreme set of conditions arose which made his policy toolkit more relevant than ever before.
Corbyn stood down as leader on 4 April, by which time the extent of the coronavirus pandemic – as both a public health crisis and something preceding an economic recession – was clear. In response, the government had already announced its furlough scheme, the contents of which were clarified on 20 April; it would cover up to 80% of any individual’s wages, capped at a maximum of £2,500 a month.
Originally intended to run until the beginning of June, the furlough scheme was soon extended by a month, before, on Tuesday, being extended again until August – with a variation of some kind running through until at least October.
The furlough scheme, now likely to cost far more than £50bn, is the centrepiece of an economic intervention without precedent in British peace time. It means that this year’s deficit – how much more is spent by government than is raised through taxation – could be in excess of 15% of GDP – more even than in the aftermath of the 2008 crisis.
One Treasury model even foresees a £500bn deficit this year, although that is a worst case scenario. For context, however, this is equivalent to the entire GDP of Belgium. The reason such previously implausible numbers are being openly discussed is simple: according to the Bank of England, Britain is entering its worst recession for three hundred years.
Amid this highly unexpected turn the Labour party has underwhelmed, its only economic intervention coming in the form of an unpopular proposal for renters, which would give households two years to repay rental debts accumulated in the coming months. Where Corbyn and John McDonnell called for a rent suspension, the party’s position is now deferral.
Such a policy could only have been devised in consultation with landlords themselves and lawyers, rather than anyone familiar with political economy or, dare I say, anyone who actually rents.
As Britain faces mass unemployment and an economic depression, Labour’s proposal would burden millions of households which have no savings with thousands of pounds of new debt. Not only is this socially unjust and electorally stupid – renters are Labour’s core vote – but it is economically illiterate: renters are the group that can most easily boost demand in the economy over the coming years, yet Labour’s plan is for them to be burdened with more debt.
At the very moment Britain’s working class should be spending, and buying the things they need, instead they will have to deleverage. If this happens at the same time as public spending cuts, Britain will enter a long term slump. It is a privatised form of austerity.
One source close to Keir Starmer’s team told me at the outset of his leadership there wasn’t a vision when it came to macroeconomics. In Starmer’s defence, the same was true with Tony Blair. But whereas Blair inherited a country running surpluses, and enjoying moderate wage and economic growth, Starmer is leading the opposition in a country which has just finished one lost decade and is entering a second one at warp speed. If some estimates are right Britain’s economy could be the same size by the end of this year as it was in 2003.
The Labour leader’s new head of policy, Claire Ainsley, is by all accounts highly accomplished and competent – but almost six weeks after succeeding Corbyn, the leader’s office still doesn’t have an economic adviser – a role for which it is publicly recruiting.
Anneliese Dodds, the shadow chancellor championed by McDonnell, has been an excellent politician since arriving at Westminster, but it would be unfair to expect someone who has only been in the role for a month, and politics for three years, to devise Labour’s economic strategy in response to a crisis without precedent.
In contrast to Corbyn, many describe Starmer as a cipher. There’s been often ambiguous talk of not repeating the mistakes made after 2010, when Labour became a party of austerity, and in turn incapable of defending its own record in government. Yet Starmer is also reputed to be a fan of the ‘alternative models of ownership’ document created by McDonnell. While in the longer term that may serve as an outstanding pillar in crafting the party’s post-Covid policy, right now it isn’t much use.
On Tuesday, the Institute for Public Policy Research published a remarkable report claiming that as much as 45% of the net cost of the furlough scheme “will be spent on rent and debt repayments”. You don’t need to be a socialist to find that grotesque – indeed the likes of Adam Smith and John Maynard Keynes would have viewed it as deeply objectionable. Yet Labour, with their renters policy, have made it clear whose side they are on. They appear to want to defend such a status quo rather than end it.
That is not to say the new leadership must come up with all the answers – nor is that even desirable. Already a consensus is growing among leading economists of the need to reject any return to austerity. Beyond that there is a growing body of opinion arguing for something expressly forbidden by neoliberalism these last four decades: to eliminate much of the debt that arises from this crisis, private and public, through gentle, longterm inflation.
But Labour must be institutionally open to such thinking, and look to the unions, movement organisations and left economists and intellectuals rather than ‘big business’ platitudes repeated by the CBI, which have already bequeathed the country a decade of economic inertia, or – as Blair did – have policy driven by what plays best in the right wing press. This time, with this panoply of crises, it would be the royal road to disaster.
We are seeing glimpses of the politics that led Ed Balls to commit Labour to austerity after 2010 – but a repeat performance can be easily avoided if the left and the labour movement steps up. A word of warning, too: Ed Balls lost his seat in 2015.
Aaron Bastani is a Novara Media contributing editor and co-founder.