Chancellor Rishi Sunak had an opportunity in his much-delayed and much-trailed spending review to lay out a new direction for the British economy, as the end of the Covid-19 pandemic pulls into view. Predictably, he did nothing of the sort. The review confirmed that this is a government steered more by factional disputes inside the Conservative party than it is by a plan for the country.
The promises made in the Tories’ manifesto, which recognised the deep unpopularity of austerity, are being kept, with additional funding for health, education and the police – although public spending overall will rise by less than promised in March. There is an additional £1bn for social care, but this is the absolute bare minimum that could be spent given the scale of the crisis even prior to the pandemic. The most significant cuts have been reserved for overseas aid – previously maintained by Tory chancellors as a key component of Britain’s “soft power”, but loathed by backbenchers and the base – with £4bn sliced off over the next year.
The climate crisis is a global problem that we can only tackle together.
Rishi Sunak’s cut to Foreign Aid budget will undermine decarbonisation efforts in developing countries.
A government that cuts Foreign Aid is not a government that takes the climate emergency seriously.
And in a classic piece of divide-and-rule, public sector workers are being targeted for a 1.2% real-terms pay cut, but NHS frontline staff will be spared, and lower-paid public employees expected to receive a flat-rate pay increase. After years of pay cuts and worsening conditions, this is a kick in the teeth for public sector workers; civil servants’ union leader Mark Serwotka was right to hint at industrial action if the cuts are implemented.
And there was no confirmation that the £20 increase in Universal Credit will be made permanent. UC is inadequate, but that £20 a week has made a huge difference to some of the poorest families over the last year. If it goes in spring, 16 million people face cuts; the Joseph Rowntree Foundation estimates that 700,000 will be pushed into poverty. It is cruel, even vindictive when so much spending is taking place, not to make the increase permanent.
To be clear, there is no need for cuts of any sort. Global interest rates are close to the lowest in human history – even turning negative (where lenders pay borrowers to borrow money) earlier in the year. So low are interest rates that the UK’s borrowing costs have fallen by £20bn relative to the March forecast. And the Bank of England, since the start of the pandemic, has issued enough new money through its quantitative easing programme to cover virtually the whole amount of the borrowing this year. There is absolutely no pressure on the government’s ability to spend and borrow as needed during the crisis.
Looking ahead, managing the increase in government debt properly means doing the same as after the Second World War: as people move back into work, taxes rises, and with low interest and inflation rates, the debt wears down over time.
Rishi Sunak has announced public sector workers will see pay freezes – Tories will say that is right because ‘they must do their bit’.
That’s not very convincing given public sector workers saw their wages frozen from 2010-18.
Overall, though, the Spending Review confirms a broader point: this isn’t a Conservative government of the kind we’re used to. Capital spending (covering things like buildings, new roads, energy infrastructure and so on) is up significantly, and day-to-day spending is set to rise. This increase, a long way short of what is necessary, is nonetheless likely to turn into appreciable amounts on the ground. The political calculation is clear: if you’re lost in the desert, even a glass of brackish water can seem like a miracle. This is what is being offered.
The new Levelling Up Fund institutionalises the approach. £4bn is being set aside – the fact this is the same amount as the cuts being made to foreign aid is no coincidence – for smaller-scale projects for which local areas will be able to bid, covering “invest in local infrastructure that has a visible impact on people and their communities”. In a highly unusual move, approval from the local MP will be needed for a bid to qualify, an exceptional and direct politicisation of a bidding process, barely a week after the National Audit Office found that “politically connected” firms were getting preferential treatment in government contracts. Far from handing power back to local areas, the Tories are setting up what looks suspiciously like a pork barrel they can keep a close eye on, whilst slapping the name of a local MP on the front of it. And if they happen to be a newly-elected Tory in a former Labour area then … gosh, well now there’s a thing. It’s Community Wealth Bribery in action.
The Tories’ opponents now need to up their game. For the time being, major cuts have been kicked into the long grass – although the hunger for austerity from the pro-market, pro-virus wing of the Conservative party isn’t going away. (Hints at a freeze in the minimum wage were one indicator of this). But we need to get much sharper on how and where spending is being done: highlighting the misuse of funds, insisting on universal provision rather than calculated targeting, demanding an overhaul of the whole system as the only way to deal with the crises ahead. Labour’s shadow chancellor Anneliese Dodds has got the first, and sometimes the second, but, whilst the demand for £30bn for 400,000 green jobs is good, they are still short on the last.
We know our NHS, education system and how we live and work will need transforming as we move out of the first phase of this pandemic. Even with a vaccine, pressures on funding will remain: for ongoing vaccination programmes, for additional spending on social care. Inequality has risen during Covid-19, as have demands for the wealthiest to contribute their fair share of tax to pay for the necessary restructuring of our public services. That’s even before we think about how to deal with future pandemics and the climate crisis. The challenges are bigger than austerity; it won’t be enough to talk only about how much more the government should spend. We need a left programme to overhaul the economy.
James Meadway is an economist and Novara Media columnist.