As exercises in delusion go, Rishi Sunak’s speech yesterday sits somewhere between Sajid Javid claiming to have a personality and Paul Chuckle asking Gisele Bündchen on a date.
In the first five months of this tax year, Britain borrowed just under £174bn. That’s more than it borrowed for the whole of 2009-10, at the height of the global financial crisis, in what we were then told was a once in a century event.
By next spring, the deficit is likely to reach £400bn – potentially more should a second wave take grip. Given the cause of the current crisis is a pathogen nobody knew existed until last December, projections are difficult. But it’s undeniable that further government interventions will push the deficit higher, while the economic activity witnessed in August appears entirely temporary – a result of clement weather, consumer euphoria at exiting lockdown and the stimulus of the “eat out to help out” scheme.
Yet despite all this, Sunak spoke yesterday of “balancing the books” and, over the medium term, “getting our borrowing and debt back under control”. While a desirable objective for much of the Tory membership, such promises are as believable as Jeremy Clarkson leading an Extinction Rebellion protest.
By June, the size of the public debt was already equivalent to that of the entire British economy. By next April, it could reach 120% – territory last seen in the aftermath of WW2 and almost three times what it was, as a percentage of GDP, in that ominous year of Tory mythos, 1979 and the ‘winter of discontent’.
But public debt is the least of Britain’s problems. The real issue is that 12 years after the financial crisis, we still lack any kind of growth model. This is a novel situation: for the planned economy of the post-war era, much production and consumption was ordered like a watch mechanism, mainspring and caliber providing order and momentum. This changed after Thatcher, when growth came primarily from the expansion of consumer credit and financialisation, and extending home ownership through right-to-buy. This model was retained – and arguably intensified – by New Labour, enduring until the year AIG was bailed out, Lehman Brothers was permitted to collapse, and Britain was allegedly hours away from the suspension of all cash withdrawals. While Covid-19 is no doubt a graver crisis than the crash of 12 years ago, we still inhabit its long shadow.
So what next? Even if we mass produce a vaccine by this time next year (unlikely, though not impossible), and even if this were relatively inexpensive (rather more far-fetched), the lesson of the coalition years is that large deficits tend to remain sticky. After peaking at £158bn for 2009-10, government borrowing remained above £100bn for a further four years – despite unprecedented austerity measures. A similar plan for the coming period means balancing the books is impossible in what Sunak labels the medium term, with austerity 2.0 barely scratching the surface – while eroding what remains of Britain’s welfare state. Given there is so little left that can be cut, particularly for those of working age, pensioners will likely be hit first – the Tories’ hope being that culture war issues like pronouns and refugees will keep them on side regardless.
For any failures during the Corbyn and McDonnell years, one unquestionable bright spot was how Labour laid a clear roadmap for raising living standards, wages and sustainable growth in the 21st century. This was premised on state investment in infrastructure, a green industrial revolution and a house building programme combined with enhancing the rights of trade unions and raising the minimum wage. Many policy proposals – from ultra-fast broadband to a network of regional and national investment banks – were profiled in meticulous detail, addressing technical issues the Tories, and indeed most Labour MPs, can’t even recognise.
Labour’s problem now is that a strategy devised for a pre-Covid era – of attacking the Tories on detail while avoiding wedge issues like foreign policy, Brexit and civil liberties – is woefully inadequate. Although Johnson has claimed there will be no going back to austerity, it’s impossible to see how the government runs wartime-style deficits without it (this being implicit in yesterday’s speech). For those who point to the huge debt Britain paid down after the Napoleonic and World Wars, the obvious rejoinder is that the country is no longer the world’s pre-eminent power. Indeed, its retreat from the leading rank of economic nations is the background to all of this.
Just as deficits are likely to stay high, it may also be the case that vast swathes of the old economy never return. Higher education, for instance, depends on debt and affluent students from abroad. If the young people of Tianjin and Chengdu stop coming to Britain, choosing instead to study at home, a sector which until recently was genuinely world class will be decimated. What’s more, any promises the Tories make to ‘level up’ the country through state investment appear implausible given simultaneous cuts and austerity.
Though no longer a world power, Britain has remained a major economic and political player for my entire life. But over the last decade, its decline has been unmistakeable – and is now rapidly gathering pace. Not only does the union appear permanently broken, and Britain’s party of government incapable of solving elementary problems (like using Excel), but countries such as South Korea, Mexico and Turkey appear set to overtake it on the most meaningful basis of economic weight (purchasing power parity). In this context, the interest rate on our ever-swelling public debt could rise, with a successful effort by Scotland to leave the union a likely trigger. Given all of this, government rhetoric of returning to balanced budgets in the near future isn’t so much like rearranging deck chairs on the Titanic, but proposing we swim the rest of the way to New York.
This year’s deficit could be three times higher than that of 2009-10. Maybe more. Talk of paying down the debt is not only a retreat to cliché – it’s a withdrawal from reality.
Aaron Bastani is a Novara Media contributing editor and co-founder.