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No more austerity: UK must discard the financial straitjacket


Lord Peter Hain is a former British Cabinet Minister and anti-apartheid campaigner whose memoir, ‘A Pretoria Boy: South Africa’s ‘Public Enemy Number One’, is published by Jonathan Ball.

As Britain staggers out of lockdown with the worst Covid-19 death rate in Europe, neoliberal orthodoxy over public spending is in retreat.

Savage cuts in the UK public sector over the last 10 Tory years left England short of 10,000 doctors, 40,000 nurses and 110,000 adult social care workers, fatally damaging the battle against the coronavirus, especially in care homes, which suffered £7.7-billion cuts.

Year after year the Tories claimed to have protected the health budget in real terms. But they never spent enough to keep up with an ageing population and with the rising costs of new technology.

The year 2020 began with more patients than ever before on waiting lists for treatment, A&E waiting times the worst on record and care homes going bankrupt as demand for elderly care grows exponentially. It’s as if the Tories had chosen as the patron saint of the health and care services as Ethelred the Unready.

Austerity, Tory ministers told us repeatedly before and after 2010, was unavoidable because of high levels of debt and borrowing after the 2008 banking crisis.  But after World War Two, with gargantuan levels of national debt and borrowing to defeat Hitler – much higher than after 2008 – Keynesian policies led by both Labour and Conservative governments rebuilt the country.  The National Health Service and a welfare state were created. Millions of new homes were built, and there was much higher growth than the abysmal levels during the austerity decade since 2010.

Since 2010 the government has been able to borrow at record low-interest rates.  There was no need to wait until the coronavirus catastrophe before discarding the financial straitjacket as the UK finance minister finally did three months ago.

After the crisis, there must be no reversion to knee-jerk style austerity, and starving the public services of support in a futile attempt to balance the budget with febrile growth.  This coronavirus has reminded everyone what Keynes taught us about the vital role for an active, investing state in a modern economy to support a flourishing private sector.

Like President Ramphosa, the UK government is under pressure to get the economy back to normal and quickly, or risk lasting damage.

But in Britain at least, what we used to call “normal” was not a good place to be. Business investment was at an abysmal level, retail sales were the worst for 25 years, and productivity was falling. The only part of the economy that was flourishing was food banks: fewer than 100 in 2001, rising to over 2000.

Yes, UK employment had reached record heights before the pandemic, but this masked widespread insecurity with nearly a million people struggling to survive on “zero-hours” contracts and over a million in temporary work or doing second jobs. The number of people feeling insecure at work doubled from 6.5 million in 2010 to 13 million in 2013.

Our dependence on key workers throughout the economy – many of them dismissed by Tory ministers as low skilled and low paid before the crisis but lauded as essential workers now – also means there can be no going back to the status quo ante. What went before was a way of running our affairs that delivered a massively unfair deal to millions of British citizens and left the economy ill-equipped to face the future.

Ten years ago the Tories used the overhang of increasing national debt and high government borrowing from the financial crisis as an excuse for austerity. They squeezed £150-billion of spending power out of the economy, 80% of it in public spending cuts, 20% in tax rises.

But austerity was never, as we were constantly told, about balancing the budget and bringing down debt to be better prepared for a future crisis. It was a neoliberal, ideologically driven agenda, a sustained strategy to reduce the role of the state. 

Tory Finance Minister George Osborne used to boast that he had squeezed the UK economy tighter than any in the advanced world, and that’s exactly what he did, leaving Britain grossly unprepared for precisely the kind of pandemic crisis that the government was warned about in 2016 by Exercise Cygnus but ignored.

After the Second World War Britain grew her way out of debt. The national debt to GDP ratio fell from its wartime high of 259% to a post-war low of 26% in 1990. It was still only 36% before the financial crisis.

Balancing the budget had nothing to do with bringing down Britain’s debt burden. In the past 50 years, Britain only had a budget surplus six times. Three of those were by the last Labour government. Margaret Thatcher only managed two. What brought the debt to GDP ratio down in the postwar period was economic growth, growth that was spurred by massive public investment.

After the lockdown has been lifted, Britain will face a fork in the road, and needs to fork off in an entirely new direction. DM


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