Now is the time to build support for a radical economic policy – not retreat from one


“Far from a retreat to more modest spending, the new economic situation is an argument for a far more aggressive – and explicitly socialist – tax policy”

By Sam Browse

As Rishi Sunak took over from Liz Truss in a parliamentary coup precipitated by the markets, Labour was as much as 45 points ahead according to some polls. 

Sunak’s ascendancy, and Labour’s poll lead, came as “the crisis” facing the country was – and continues to be – transformed in front of our eyes from the soaring cost of living to a crisis in the Government’s fiscal credibility. We have transitioned from a debate about how we prevent large swathes of the population from falling into poverty, to what public services and benefits need to be sacrificed to placate the gilt market gods of capitalism.

The mechanism for that was the mini-budget. There’s a meme going around that says Truss is a sleeper agent of the left because of the damage she’s wrought to the Conservative Party. But you could equally argue that in crashing the pound in the fiscal chasm of unfunded tax giveaways to the wealthy and the corporations, the kamikaze budget succeeded in changing the conversation. Now it’s markets spooked by fiscal policy, not people fearful of rising energy costs, that Ministers are trying to calm. The result is to rehabilitate the technocratic austerity politicians discredited by 12 years of economic slash and burn. Truss could be viewed less as a secret agent for the left, than for “sensible” 2010s Tories like Theresa May, Jeremy Hunt, George Osborne and their 2022 inheritor, Rishi Sunak. 

Labour must resist this gallop to Austerity 2.0. So far the signs don’t look good. In his speech to Labour Party conference, Keir Starmer said,

‘Rachel Reeves and I have set out a framework for sound money. We’re determined to reduce debt as a share of our economy. Every policy we announce will be fully costed. And we will set up an Office for Value for Money to make sure public spending targets the national interest.’

‘And we should be clear about what that means. It means not being able to do things – good Labour things – as quickly as we might like. That’s what responsible government looks like. Because if you lose control of the economy, if you act irresponsibly – as the Tories have in spectacular fashion – then you lose the ability to do anything. And working people pay the price.’

The same rhetoric – which accepts, fundamentally, the framework governing the austerity agenda – appeared in his address to the TUC: sacrifice everything to service a “black hole” that is in fact the product of an arbitrary fiscal rule – targets to ‘reduce debt as a share of our economy’, whatever the economic outlook.

Some will argue that rising interest rates mean that borrowing to invest is no longer an option – that the interest rate outstrips the rate of growth stimulated by the investment. But far from a retreat to more modest spending, this is either an argument for reforming – or even rescinding – the Bank of England’s power to set rates, or for a far more aggressive – and explicitly socialist – tax policy.

The latter should be a no-brainer. During the pandemic the Government pumped around £500bn into the economy. That money has not simply vanished into thin air. While it was used to furlough wage earners and prop up the salaries of small business owners, the richest were still receiving an income from their wealth  That income was provided by everybody else: rents from their tenants; interest payments from their debtors; and dividends from the stocks and shares in companies that continued to trade and profit during the public health crisis. The result was a transfer from the state, via covid support schemes, to the wealthiest, who – unable to spend or reinvest in the middle of a lockdown – put that cash in assets like houses or commodities, further inflating their wealth and prices. 

A progressive policy should attempt to claw back that vast accumulated wealth through the tax system. To build a mandate for such a policy will require a more radical, left populism – not an accommodation to technocratic austerity politics. We need to reframe the debate, not reinforce rightwing talking points.

The principle isn’t the only thing at stake – it’s the political dividing lines, too. In his statement rescinding September’s mini-budget, Jeremy Hunt said that the true test of Labour’s fiscal responsibility will be whether MPs vote for the measures proposed in the upcoming Autumn statement. We know this will include deep cuts to already gutted public services. The accommodation to austerity rhetoric – and, given Starmer’s remarks, possibly on policy, too – will make it harder for Labour to push back, running the risk of repeating the mistakes of 2015 all over again.

Sunak is already bouncing in the polls, reducing Labour’s lead. Of course, the mini-budget and the hit to people’s living standards – particularly the mortgage-paying homeowners at the core of the Conservative coalition – may have irreparably wrecked the Government’s credibility, and this may only be a “honeymoon” period. But it’s a long time to the next election; we cannot wait for it to fall into Labour’s lap. Without seizing the economic agenda now, a Tory electoral claw-back can’t be discounted.

That means tackling the correct crisis – not sacrificing benefits and public services to gain favour with the gods of market fundamentalism, but proposing real solutions to the ballooning cost of living. It’s that, or adopt the same “the cuts are too far and too fast” rhetoric of 2015. Even if the electoral calculus means Labour can afford to promise more austerity, the people that so desperately need a Labour government have had over a decade of it. Enough is enough.

Featured image: “Freeze prices not people” placard at the Enough is Enough demonstration on October 1, 2022. Photo credit: Ben Folley/ Labour Outlook archive

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