Labour has a populist argument against Liz Truss’s spendaholic plans to borrow money from the international money markets and direct it into the bank accounts of the privileged. ‘What do you get?’ Rachel Reeves and Keir Starmer will ask the public. ‘And who picks up the bill?’
For the overwhelming majority of the population the answer to ‘what do you get?’ is ‘not much’. And to ‘who picks up the bill?’ is ‘me, people like me, and our children and grandchildren’.
The Conservative class interest in rewarding its supporters looks like a gift to the opposition. But the gift is not as generous as it appears. For two months now, centrist members of the shadow cabinet have told me that they worry about the consequences of a Conservative debt binge. They fear that the left will say: if Truss can borrow like no tomorrow for her favoured causes, Labour should do the same for theirs.
I don’t want to overestimate Labour’s difficulties. Twelve years of Conservative rule have turned us into a sick man of Europe: a luckless land whose economy, infrastructure and health are in remorseless decline.
The governments tax cuts today add up to £45 billion. But this will cost taxpayers when the time comes to pay off the debt. Most will see few compensatory benefits. As the Tony Blair Institute explained, the NI cut will save 76p a month for those on the lowest incomes – but £93 for the richest households. Scrapping the top rate of income tax will not help the vast majority of citizens for the obvious reason that we don’t pay it. But we will have to repay the debt Kwarteng racks up.
Labour is looking a tad cowardly
The decision to abandon Rishi Sunak’s corporation tax rise is a bung to corporate managers and shareholders – business rates are the taxes that bother small and medium-sized enterprises. There will be no bang for the bung. Sunak tried and failed to explain to Conservative party members during the Tory leadership campaign that there is no evidence that our low corporation tax rates led to CEOs investing in the UK. Truss is gifting money to big business for no good reason and expecting taxpayers to cover the tab.
The bill is growing exponentially. Debt interest costs are rising. Sterling is falling. (And please don’t say the Euro is also falling against the dollar. Interest rates are higher in the UK than the Eurozone and, if we weren’t in such a beleaguered state, the pound would be stronger.)
Substantially and permanently increasing borrowing risks putting debt on ‘an ever-increasing path’ that may ‘eventually prove unsustainable’, says the Institute for Fiscal Studies. Truss and Kwarteng’s pet theory that headline tax cuts will deliver a sustained boost to growth is a ‘gamble, at best,’ it added with its customary tact.
Sources close to the Labour Treasury team were blunter. ‘Truss can say borrowing to fund tax cuts for the rich will grow the economy,’ they said. ‘But then she can also say she’s an astronaut.’
True, the government’s extraordinarily expensive subsidies for fuel will help everyone – although I would not underestimate how many people will still suffer, and are, in fact, already suffering. But taxpayers must meet the cost of borrowing to hold fuel costs down alone. The Conservatives will not impose an additional windfall tax on energy companies. By any reasonable standard these companies are supercharged spivs: wartime profiteers benefitting from the Russian crimes against humanity in Ukraine. But Truss insists on treating them as the deserving rich.
In the circumstances, it is therefore reasonable to predict that Labour can only make gains. But the Labour party has a problem. Imagine you are on the left of the party. You would surely be thinking now: if the Tories can borrow like there is no tomorrow, why can’t we? The Labour leadership thinks it must be seen as economically responsible if it is to have a chance of recovering from the crushing defeat of 2019. But responsibility is out of fashion. It’s in its grave alongside the corpses of prudence and fiscal conservatism.
At next week’s Labour conference the unions will call for the party to back pay increases that match inflation, and for the renationalisation of the water industry, Royal Mail, the railways and large parts of the energy industry. They are asking Starmer and Reeves to commit themselves to tens of billions of pounds of unfunded spending commitments (renationalising water alone would cost £90 billion). But what the hell, they will say. If Truss puts Tory pet projects on the nation’s credit card, Labour should do the same.
You could go on. Why not borrow to increase the miserable levels of benefits for everyone except wealthy pensioners, or to fund a serious effort to reach net zero?
It’s not only left-wingers who will be asking hard questions. Everyone on the centre-left will notice that Truss is willing to take unpopular decisions she thinks are good for the economy, and is prepared to go out and argue her case. No one in working-class towns and cities voted for Brexit so that bankers could get richer. (And I doubt many middle-class voters did either.) Truss and Kwarteng don’t care. They believe their policy will boost the City. They may not understand financial services – most people making big City money are in hedge funds and boutique firms that are not covered by the bonus cap. But even if you accept all of the above, you still have to say of the Tories that, however incompetent they are, they aren’t cowards.
Labour is looking a tad cowardly, by contrast. From Starmer down, every sane Labour politician knows that to increase growth we need to rejoin the Customs Union and get the UK back into the European single market, or close enough as makes no difference. They know it but dare not make a potentially unpopular argument.
Their caution means centrist Labour supporters are now experiencing the frustration that led left-wingers to vote for Jeremy Corbyn. Why, they ask, must we always bite our tongues and hide what we know to be true? The Tories can go wild. They can preside over a miserable and economically disastrous austerity in the 2010s to get borrowing down, and then go on a borrowing binge in the 2020s. They can cause vast economic damage by ripping the UK out of the EU, and then create a frightened political and media climate where the opposition is too scared to even point a finger at the mess.
Why can’t we say what we know to be true?
The Labour leadership’s argument is that different rules apply to the left. The Tories can create chaos and keep winning elections. Labour can only win if the public believes that it has higher economic standards.
I think the leadership’s analysis is right. But I would not count on Labour supporters buying it indefinitely.
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