The Supply Chain Crisis Is Exposing Tory Divisions

Tensions over the Conservative party’s economic policy have erupted just weeks before chancellor Rishi Sunak’s spending review,  which will be released on 27 October. This set-piece occasion is meant to outline the government’s spending plans for the next three years, up to the general election in late 2024. 

But whilst Sunak has positioned himself as a champion of traditional Conservative economics – advocating for low taxes and spending cuts – the prime minister and a number of leading cabinet members want to stake out a different kind of Conservatism. 

Their immediate concern is the squeeze on essential supplies as a result of last year’s global lockdowns, surging demand for goods and services, and, in some cases, extreme weather conditions hurting the supply of essential goods, gas in particular.

Indeed, with the price of gas hitting an all-time high, businesses that are heavily reliant on gas and electricity are facing a disastrous increase in costs. These businesses have been looking to the government to bail them out, and have been appealing to the Business department for handouts. 

In response, business secretary Kwasi Karteng claimed in a series of TV interviews on 10 October that he was working with the Treasury to create an emergency package for energy-intensive businesses. However, he was almost immediately rebuffed by the Treasury, with a source accusing him, in effect, of lying on national television.

While this kind of public disagreement is already extremely rare, the situation descended into outright farce when the Treasury itself then got slapped down by Number 10 – with an official spokesperson for the prime minister saying that business department officials were in fact “working across government, including with the Treasury, on this important issue”.

While, on the surface, this kind of bickering may seem petty, it actually speaks to far bigger problems within the party. The Tories may want to shore up their new electoral coalition, deliver Brexit, deal with the long-lasting impacts of Covid-19, and manage the ongoing supply chain crisis, but they have very few guidelines on how to actually do any of this. With tensions mounting over how best to tackle these pressing issues, the left must be ready to exploit this weakened Tory government.

What’s causing the conflict?

There are three fundamental factors driving the Tories’ infighting. The first, and most significant, is the ongoing impact of the coronavirus pandemic. While the first lockdowns, and their incredible economic impact, are largely behind us, their aftershocks are still being felt. A combination of pent up demand from consumers, and difficulties in restarting industries affected by these lockdowns, have helped produce serious disruptions in the supply of goods and services.

What’s more, continuing outbreaks of the disease – notably in its more infectious Delta variant – are hammering the supply of goods and services across the globe. By forcing shutdowns of factories, as currently in Vietnam and China, coronavirus has squeezed the production of manufactured goods.

These effects, combined with increasing environmental instability, mean it will become harder and more expensive for firms to supply goods and services for the foreseeable future. We can see this, for example, with the silicon chip shortage, which has been exacerbated by droughts in Taiwan – the production of these chips, used in millions of products, from cars to washing machines to smartphones, requires millions of gallons of water daily. 

Toyota slashing global car production 40% as a result of the silicon chip shortage. https://t.co/zd2FoGlKsV …the shortage itself is very substantially the result of environmental factors: covid, drought in Taiwan, freeze in Texas.

— James Meadway (@meadwaj) August 20, 2021

Adjusting to this new reality is the key challenge faced by, not only the British government, but governments across the world.

Neoliberalism is dying. 

The second factor stoking tensions within the government is the slow death of neoliberalism. For decades, the ideology has provided a guidebook for governments, stressing the need for free markets to rule the economy, for corporations and the wealthy to be taxed as little as possible, and for the state to mostly get out of the way. 

However, in the years following the 2008 global financial crisis, governments across the world have found themselves intervening in the economy more and more. 

The threat of competition from China has been a particular spur to state intervention, with countries like France and Germany pushing for a government-led, EU-wide “industrial strategy” – meaning that EU governments step in to support industries deemed strategically important, like the manufacturing of silicon chips. 

And, of course, the pandemic has only served to accelerate this breakdown, with governments forced to spend incredible sums of money on support for employees laid off and businesses mothballed, and to directly manage some parts of the economy – for instance, in trying to procure supplies of medical equipment like PPE and vaccines.

A government divided. 

As we emerge from the first phase of the coronavirus pandemic, and head into what will no doubt be a difficult 12 months of adjustment (with the prospect of further crises and recession ahead), conflicts around how best to proceed are coming to the fore.

One particular sticking point is how far any government should go in breaking with the traditional, neoliberal way of doing things. 

This is exemplified in the divide between Karteng – who has the support of Number 10, and is advocating for direct government support for businesses – and the treasury – which is arguing for the more traditional Tory position of limited government intervention and spending cuts.

This takes us to the third factor driving the conflict, which is the political turbulence within the Tory party itself. Elected on a promise to “get Brexit done”, and with a manifesto that shamelessly purloined key parts of Labour’s 2017 offer – more spending on public services, addressing regional inequality – the Tories under Johnson successfully assembled a new coalition of support, winning the party’s first comfortable parliamentary majority since 1987.

But his coalition isn’t as strong as it first looks. Many of the seats that switched from Labour to Tory in the so-called red wall had been drifting out of Labour support since 1997 – some of them provided Tory MPs with very slender majorities in the most recent general election.

And whilst the Tory party has rebuilt itself in the past – switching to support the welfare state, high tax ‘post-war consensus’ after 1945, then turning against it again under Margaret Thatcher – doing so wasn’t exactly an easy operation. It took Thatcher the whole of her first term in office to overcome opposition from Tory ‘wets’, who grew increasingly alarmed at the steep rise in unemployment and social unrest her hardline policies were provoking.

It’s only going to get worse.

While Johnson is a significantly less serious figure than Thatcher, he is in a far stronger position in the party. For, as long as he remains leader, the party and the government is going to be shaped by his concerns precisely because he dominates the party so comprehensively – regardless of the objections from politicians like Liz Truss, who is hugely popular with the party membership, or from Sunak himself. 

And with the row over support for businesses now resolved against the Treasury, it’s a fair bet that the upcoming spending review will look to reward new Tory voters in some form, perhaps with more funding for ‘levelling up’ – or at least the Tories’ will spin it that way.

That said, with Johnson now trying to talk up the Tories as the party of high wages, at the same time that he is confronting an ongoing crisis in the cost of living, griping from within his own ranks – from both party members and MPs – is only likely to worsen. 

Exploiting tensions.

Whatever they actually do in government, the Tories like to think of themselves as a low tax, small state party. Sunak’s Tory conference speech played up to this self-image and was clearly intended to position himself in opposition to Johnson’s interventionist tendencies.

This government can look impregnable at times – secure in its majority, and facing a weak and fractious parliamentary opposition that has not been able to consistently land meaningful blows – but grappling with the multiple crises of our moment, and holding together its new coalition is creating severe strains within the Tory government.  

The good news is that these tensions create opportunities for the left, since disputes at the top open arguments across wider society – arguments, for instance, over the minimum wage, or protecting jobs in a crisis. It is therefore vital that we are alert for opportunities to intervene and prepared to offer meaningful solutions to such problems in the coming months. 

James Meadway is an economist and Novara Media columnist.