Britain is now in a very undesirable state. The governing Tories are bereft of any sensible ideas and likely to lose the next General election in 2024 to Labour, who are promising to be the party of ‘sound finance’, which means they will be incapable of dealing with the challenges that face the nation in a highly volatile world and will likely end up losing popularity and ceding government back to the Tories. And just as in 2010, the Labour reputation will tarnished and they will be lost again for another sequence of elections. That sort of future prospect is not inspiring is it. Caught between a rock and a hard place.
Labour promising to be Tories basically
A lot of confusion happened as a result of the pandemic – with traditionally austerity-biased political forces being forced to adopt pragmatic positions contrary to their nature and allow a greater fiscal role for government to support incomes and employment.
While the pandemic has been devastating, the fiscal interventions prevented the economic situation deteriorating and compounding the shocking health situation.
At least incomes were protected to a certain degree and jobs were protected (not fully but better than not).
It is true that the low income communities has borne the burden of the pandemic to date and that is because the policy interventions were not comprehensive enough.
One might have thought that the traditional social democratic political forces might have taken a lesson from this period of fiscal dominance and used it to categorically reject the neoliberal mainstream macroeoconomics narrative that has dominated for the last several decades.
But the truth is that just like the situation during the Global Financial Crisis, the social democratic forces in politics have not taken this opportunity to redefine the economic debate and broaden the policy space.
Rather, they seem to think that they have to be more conservative than ever and promise to be better at doing what Tories do naturally.
The British Labour leader gave a speech yesterday (January 28, 2023) in London
Three years ago, when I became leader I knew we had a huge task ahead. We had to change our party and prepare for power. We had to change our party and prepare for power all in one go. Not change for change’s sake. Change with a purpose to make our Labour Party fit to serve our country. That’s why we had to support Nato and show it’s non-negotiable.
Show want business to thrive and prosper. Understand the importance of sound money. Country first, party second. But most of all, it’s why we had to rip antisemitism out by its roots.Our message at the next election must be that we are different to the party that Britain rejected in 2019. We just point to the changes we’ve made. We must say never again will Labour be a party of protest, not public service. Never again will Labour fail to grasp that economic stability is the foundation of our ambitions. Never again will Labour allow hate to spread unchallenged.
We’ve changed our party and we’re ready to change Britain. Ready to build a fairer, greener, more dynamic Britain, where working people succeed. Aspiratino is rewarded. Public services work. Communities control their own destiny.
A Britain with a sense of hope and possibility, once again. That’s what this Labour Party stands for. Let’s make it happen.
He also said:
The lesson of the last year is stark. Lose control of the economy, and its businesses and working people who pick up the bill. We can’t let that happen, even when it puts a brake on things – good Labour things – we might like to do in power. Sound money in our public finances comes first. But at the same time, we must be bold on reform, on reconstruction, on national renewal.
So the priorities appears to be – sound money “comes first” and “most of all” expunge antisemitism.
The antisemitism narrative in my view is a ruse to expunge the socialist influences in the Party.
There have been on-going purges over the last three years under the antisemitism banner which are really just about getting rid of the Left and reinforcing the right-wing forces within the Party.
Some excellent MPs and party workers have been expelled under this ruse to allow Starmer and his stooges to push to the Right.
Recent House of Commons Research Briefing (published January 17, 2023) –
The budget deficit: a short guide (published January 17, 2023) – provide a relatively recent view of Britain’s fiscal position.
Do not take the report seriously other than the data. All the stuff about funding deficits etc is maintstream.
The data suggests:
1. “In the financial year 2021/22, government revenue – from taxes and other receipts – was £915 billion while government spending was £1,040 billion (£1.0 trillion). The deficit was therefore £125 billion, equivalent to 5.4% of GDP.”
2. “At 5.4% of GDP, the deficit was the UK’s twelfth largest since 1948.”
3. “During 2021/22, the Government was supporting households, businesses and public services through the coronavirus pandemic. Less support was provided than during the previous year when, as discussed below, the deficit reached a peacetime record of 15% of GDP.”
4. “Government spending increased from 39.5% of GDP in 2019/20 to 53.0% in 2020/21. The large increase reflects both government spending increasing in cash terms by around 24% and GDP falling by around 7%, in 2020/21.”
5. “Government revenues were equivalent to 36.7% of GDP in 2019/20 and 38.0% of GDP in 2020/21.”
6. “Since 1970/71, the government has had a surplus (spent less than it received in revenues) in only five years. The last … surplus was in 2000/01.”
7. “Since 1970/71, the average annual budget deficit is 3.7% of GDP.”
8. “Relatively large budget deficits are forecast for 2022/23 and 2023/24 as the UK faces high inflation, rising interest rates and a weak economy.”
Think about some of the challenges that the new government will face.
The NHS is in a deplorable state as a result of the austerity imposed on it by the Tories over the last 11 years or so.
It has a massive funding shortfall and the King’s Fund identified major staffing shortfalls – NHS staffing shortages: Why do politicians struggle to give the NHS the staff it needs? (November 24, 2022).
It is 7 per cent short of required doctors and 12 per cent short of nursing staff and the problem is getting worse by the year. Other ancillary health needs are well short of the required staffing levels.
The Report noted above concluded that the staffing problem alone means that the NHS will not be able to deliver output sufficient to meet government targets.
Reports late last year indicated that even at the current scale the costs will be rising by at least £4 billion at the same time that the Tories are pushing the service to make ‘efficiency savings of £14 billion over the next three years or so.
Obviously, the manifestation of these shortfalls are longer waiting lists, overstressed existing staff – with rising absenteeism, sickness claims, and premature exits – further exacerbating the situation.
Britain will also have to deal with the increasing problem of Covid disability which will see millions of people in need of extra health care relative to what might have been expected prior to the pandemic and slower growth in the labour force as this cohort will not be able to work.
Major funding and support for skills development with significantly higher wages will be required.
British Labour has so far not demonstrated they are willing to address the funding shortfall and produce a plan to redress the years of neglect.
As far as I can work out the only announcement has been to say they will divert receipts arising from cancelling the privilege that so-called ‘non-domiciled individuals’ enjoy with respect to paying taxes only on their UK-derived income (Source) and restoring the top income tax band.
This is a Corbyn-era policy.
Even though this is a step in the right direction – to reducing inequality – it is hardly going to fix the NHS neglect.
At last year’s Annual Labour Conference, the shadow chancellor claimed that they would ‘raise’ £2 billion from the tax changes which is hardly going to cover the massive funding shortfall – from past neglect and future cost challenges.
And it also perpetuates the taxes fund government spending narrative which is at the core of the problem facing Britain in the period ahead.
What does Starmer actually mean by ‘sound finance’?
Well if the speech the Shadow Chancellor gave at last yaer’s Labour conference is anything to go by it means that any policy initiative will be:
… carefully costed and fully funded.
Fully-funded means matched with tax revenue.
So fiscal-neutrality.
The pandemic pushed the fiscal deficit above its long standing average of 3.7 per cent of GDP.
There is no way that the government can pursue a meaningful green transition, fix up the NHS, restore public transport, restore the quality of water supplies, and more if it is not prepared to oversee an above average fiscal position for at least two terms of governments.
The damage to Britain’s public sector is so significant that limiting spending to what it collects in taxes will leave Britain seriously short of effective government.
But the Tories are being Tories – again
As the March fiscal statement is approaching, the British Chancellor is out and about massaging expectations.
He is trying to claim that Britain’s problems are centred on workers who have either retired early as a result of Covid or not looking for work hard enough.
He also claimed that (Source):
… sound money must come first … restraint on spending.
The Tories are currently refusing attempts by education and health care workers for adequate pay rises and constraining spending in the areas they have neglected over the last decade (social welfare, prisons, etc).
In a major speech in London last Friday (January 27, 2023), the Chancellor spoke in jargon – denying that Britain was facing “declinism”, which was rather similar to when David Cameron spoke of the – Big Society – in 2013.
Both vacuous statements not backed by any policy assurances – just spin.
He claimed that the Tories would target “the four Es” by which he meant – “enterprise, education, employment, everywhere”.
Note that marketing spin defines the 4 Es as “Experience, Everyplace, Exchange, and Evangelism”.
The Chancellor however clearly considered all this action would come from the private sector, which has failed dramatically when given public assets and essential services to operate under the privatisation agenda.
I also could not find any coherent proposal to improve education when the current position is to force real wage cuts on teachers and maintain spending anywhere near where it has to be to upgrade British state schools to redress the previous shortfalls.
And my reading of the apprenticeship levy, which was introduced in 2017 to ‘raise funds’ to cover the training needs, is that it has been a disaster.
It is an old idea (Harold Wilson even such levies in the 1960s).
The problems have been:
1. Apprentice openings dramatically declined after 2017, even given the pandemic that was to come.
2. At the time, there was a massive shortfall projected in apprenticeship completions and skills development. That means extra funding was needed rather than a shift from a grant scheme to the levy.
3. There has been a bias in the selection against young workers.
And we probably need to note that ‘levelling up’ has become ‘everywhere’ and the failure of the current government in the former agenda will cripple the renamed agenda.
Conclusion
The point is that both sides of British politics are crippled by the same fictional mania about having to design policies that cover spending with tax revenue, not understanding that to really address the challenges will require substantially larger fiscal deficits for an extended period into the future.
The apprenticeship levy is a case in point – it was previously a grant system (that is funded by public spending). When it shifted to a ‘levy’ system, the public spending was withdrawn, which, in part, goes to the core of its dysfunction.
Both sides of politics want to have ‘sound finance’ – which will seriously limit what they can do.
The scale of what they can do is in this respect is tiny compared to what they must do to prevent Britain declining further.
It is pretty depressing that the choice facing the people is thus.
That is enough for today!
(c) Copyright 2023 William Mitchell. All Rights Reserved.
