Post-austerity Britain will be an odd kind of place. It’s going to look remarkably similar to the previous one. The National Health Service will be off the danger list and there may be a recession. Disappointed? That’s why this week’s Budget, praised for its moves to block Labour on the political chessboard, could end up handing the game to Jeremy Corbyn.
The instinct of a hawkish chancellor like Philip Hammond would, in normal times, have been to bank some of the £13bn “windfall” from better than expected tax receipts. Early in a parliament, most chancellors amass revenue to spend at a general election. These are not normal times. If Theresa May fails to secure a deal in Brussels, or can’t persuade parliament to back it, there is likely to be a no-confidence vote and a general election. However much the prime minister denies it, Britain’s main political parties are now in full electioneering mode.
Mr Hammond’s decision to spend the lot, while cutting taxes, has bought temporary popularity and soothed fractious Tory MPs. That may help to make them more reasonable about any deal Mrs May comes back with. But whatever the chancellor really feels about balancing the books, he had little choice but to give up on it — in order to make something of the prime minister’s rash promise of “ending austerity”.
Mrs May’s assurances were a strange capitulation to Labour’s line of attack. As soon as she raised the possibility, her opponents advanced five paces. John McDonnell, shadow chancellor, demanded that the government apologise for “the scale of hardship eight years of Tory austerity has inflicted on our people and communities”. Mr McDonnell has found a ready audience for his portrayal of difficult decisions taken in the wake of the financial crisis as heartless — especially given the very real suffering being experienced by those facing delayed welfare payments under universal credit. Until now, though, he has failed to convince people that the cuts were not just heartless but unnecessary. But that is where the argument will go next.
Just like “Brexit means Brexit”, “ending austerity” is whatever you want it to be. Most people might, understandably, assume it means no more cuts. How wrong they would be. Remove NHS largesse, a sop to defence and the shoring up of universal credit, and real terms per capita spending will remain virtually flat. This was never an issue on which the Tories could outbid the left.
How you define austerity depends on where you sit. In many areas, things were never quite as austere as it suited both perpetrators and critics to claim. Government expenditure is currently 41 per cent of gross domestic product — a bit higher than when Tony Blair left office. Pensioners have enjoyed rising real incomes. For other groups, including some low-income families, things have looked very different. Local authorities made huge efficiency improvements during the coalition years: lessons which must be learnt in the NHS if the new billions are to be used wisely. Now, the squeeze on local government and its social care services have become too great to bear — this, the chancellor ducked.
Rather than draping the Budget in austerity language, it would have been perfectly possible to present the tax cuts and spending as sensible stimulus to balance the country’s stuttering economic performance since the Brexit vote. This was, after all, the first time that the Office for Budget Responsibility has forecast growth of below 2 per cent for five consecutive years.
From now on, every decision to cut or freeze spending can be painted as political choice rather than financial necessity. Mr Hammond insists that extra spending on public services must carry equal weight with infrastructure investment, lowering taxes and cutting the national debt. That language will not resonate with voters if his enemies cast every new decision as a broken promise.
Having banked the Tories’ apparent climbdown, Mr McDonnell lost no time in promising to double down on their spending plans. But he has also moved the fight on to new ground: economic mismanagement. If a government can so easily retreat from deficit reduction, plus cut taxes, did we really need to endure all that pain? Is it prudent for a chancellor to rely so heavily on changeable forecasts?
In the coming months, we will see Labour borrowing heavily from the playbook used by David Cameron and George Osborne in the run-up to the 2010 election, when they attacked the Blair/Brown government for economic incompetence. Spending so much so fast on the NHS had unleashed internal inflation, wiping out many gains. GPs became the highest paid family doctors in the world while abandoning night visits. Weak bank regulation, the deficit and Gordon Brown’s slowness to nationalise the banks opened other vulnerable flanks.
The attacks on Labour’s stewardship of the economy worked because people were tired and ready for a change. That is where we are now. Yes, the UK has record employment levels and low inflation. But there is a mood of insecurity and fatigue.
To be fair to the chancellor, he would argue that in cutting taxes while raising spending he was signalling a clear alternative to Labour tax-and-spend. For Conservatives, “ending austerity” is now defined as boosting public services and giving taxpayers some of their money back. That’s a gamble, given that many public services will remain the same and tax cuts are unsustainable. When Tories try to play the austerity game, only Mr Corbyn can win.
The writer is senior fellow at Harvard Kennedy School