Rishi Sunak delivers the daily coronavirus briefing, 29 May 2020. Photo: Number 10 via Youtube Rishi Sunak delivers the daily coronavirus briefing, 29 May 2020. Photo: Number 10 via Youtube

The ruling class will use the same tricks as in 2010 to justify more austerity. Susan Newman argues that nothing less than total economic transformation will do.

For many commentators, chancellor Rishi Sunak’s emergency budget announcement in early March signalled the end of austerity. However, larger  government budgets do not necessarily mean more progressive policies. We organised against austerity from 2010 onwards, because government budget cuts were focused on taking away from the health and social infrastructure on which most of us, and low-income groups in particular, depend.

The economic measures taken to deal with Covid-19 have broken neoliberal orthodoxy, which is important in itself, but they have not been primarily about the welfare of people, rather they have been focused upon keeping businesses afloat.

The Office for Budget Responsibility estimates that crisis related packages will exceed £100bn this year and government borrowing could rise to more than £300bn this year. Compared with expected borrowing of £55bn before the pandemic, this is a very large figure.  

There are, however, some important points to be made about it.

First, a quick comparison with other items of budget expenditure puts it in perspective. For instance, the decision to renew trident will cost us an estimated £41bn whilst the bill for HS2 has been estimated as somewhere between £85bn and £110bn. In 2008, the Labour government spent £133bn in cash to bail out the banks. Meanwhile by comparison, just £22bn a year is spent on adult social care. The potential for spending and the actual priorities of government are clearly written in these figures.

Second, government has a huge capacity to borrow.  In ‘normal’ times, governments finance expenditures through taxation and borrowing. The government sells bonds to investors via the financial markets. A bond is essentially an IOU, a promise to repay, with interest, at a later date. Even with low interest rates, UK bonds appeal to investors as they are deemed to be essentially safe. How much the UK can borrow is then limited only to the demand of government debt by investors.

Demand for UK government bonds surged in the pandemic as investors sought a relative safe haven in longer term government debt. Demand for UK government bonds has been further propped up by the Bank of England drawing from the Ways and Means account (essentially printing money) to buy government bonds to the tune of £200bn in a process referred to as monetary financing. Whilst the Bank and the Treasury have stressed that any drawing from the facility will be repaid as soon as possible before the end of the year, it is not unusual for this type of financing to be a bit more permanent. It’s worth noting that the £465bn of government bond purchases by the BoE in the successive rounds of quantitative easing in the post global financial crisis period has not been repaid. In fact, according to a founding member of the BoE’s monetary policy committee, Willem Buiter, the funds can sit on a central bank’s balance sheet indefinitely. There is a magic money tree after all.

Can’t pay, won’t pay

Just as Austerity was posed as a trade-off between people and economy, a similar trade-off is assumed between government spending to stimulate the economy, including rescue packages for some firms and industries, and tax cuts in some settings; and the need to repay the debt that has been racked up by the deficit due to such Covid related expenditures.

Debate has, in the main, been framed around the how and when of debt repayment rather than questioning whether or not the debt needs to be paid at all. For example, a recent briefing from The Progressive Policy Think Tank (IPPR) proposed, on the basis of some careful and considered modelling, that a “more equitable way to place the public finances on a sustainable footing is through progressive taxation, including taxation of wealth. Given that government spending as a share of GDP will need to rise, higher tax shares should be a medium-term policy goal”.

Redistributive taxation is of course crucial, both in terms of socialising chunks of capital and in terms of  challenging the pervasive power of the capitalists. But in an article for the Guardian last month, Simon Wren-Lewis points to the dangers of once again focusing on the government deficit amidst scare mongering around the potential for a sovereign debt crisis. The debate on the left should go beyond “how we pay for the crisis” and argue that we need not and should not pay.

By historical comparison, today’s national debt to GDP ratio is not particularly high and with the Bank of England effectively backing the debt, there is scope for it to increase and persist without triggering a sovereign debt crisis.

In the current context of very low interest rates and with the Bank of England willing to step in to buy government debt when needed, persistent and high debt to GDP ratios are sustainable. Moreover more money can be found to finance progressive economic policies and the rebuilding and expansion of the social infrastructure decimated by a decade of Austerity.

Just like Austerity in the wake of the global financial crisis, the repayment of government debt in the wake of the pandemic will be a political choice.

A moment for change

The governments’ proposals for economic recovery have moved on from 2010. There is now wider acceptance for government expenditure and greater tolerance of a high debt to GDP ratio in the medium turn, as there is of  the need for expanded social expenditures in the near-term. However, the purpose of the conservative government’s policies will be to keep the existing economic and financial architecture intact.

Proposals will not involve tax increases and are more likely to include measures such as VAT cuts aimed at stimulating consumer spending. Cuts to stamp duty on house purchases are on the table for the government since the housing market is central to the maintenance of personal wealth for owners of assets. The government will wish to shape policy in line with a “pro-growth economic strategy” with a continued focus on GDP as the main policy goal. They will continue to argue that all emergency expenditure needs to be paid back.

Four decades of neoliberalism and a decade of Austerity has taught the wider Left to reject the notion of trickledown growth. We should not accept policies prioritising the economy over people with the promise that economic growth will necessarily bring about improvements in our living standards. The narrative of growth bringing about wider welfare improvements is a thinly veiled strategy for corporate enrichment. Moreover, with expectations of a second wave of Covid-19, and the likelihood of future pandemics, anything short of a radical restructuring of the economy will be insufficient for ensuring that the needs of society are met.

As socialists, we need to fight for fundamental change in the economy. Part of this could be a call for more devolved budgets and greater democratic participation at local and regional levels. We should call for progressive taxation policies that are aimed at equalising income and wealth distributions and the funding of greater expenditure on health and social infrastructure including towards free comprehensive education lifelong education. And we should oppose demands to pay back

Ultimately, we want an economy that is characterised by the organisation of production and distribution that meets the needs of people, an economy that serves society and not a divided society that serves the interests of those that run capitalism. This will require us to simultaneously organise to shape our local economies, expanding workers’ participation in the production of goods and services, and placing strong demands on the state that counter dominant economic narratives that foreground growth and warn of risks to the market.

For the first time in decades, there are widespread calls for these kind of changes. We need to be clear that they won’t happen automatically, that they will have to fought for. And we need to be clear that this will be a fight that challenges the capitalists’ most passionately held right – the right to control the economy.

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