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Why Theresa May is lying to you 

5733835918_0276881b3c_qIn her party conference speech Theresa May promised to transform the Conservatives into the ‘party of the workers, the party of public servants, the party of the NHS’. She declared: ‘it’s time to remember the good that government can do’. Journalists on both right and left have been queuing up to announce a new era in British politics. Allister Heath has written in The Telegraph of May’s “repudiation of the Thatcher-Reagan economic world-view” and her apparent recognition that government is “the solution, not the problem”.

Meanwhile, John Gray in the New Statesman has claimed that May “has broken with the neoliberal model that has ruled British politics since the 1980s”. So where’s the evidence for all this? Gray finds it in May’s tax reform pledges, her plans for a national industrial strategy and her promise to reassert the role of the state as the final guarantor of social cohesion. 

But let’s be clear. Cameron also put tax reform at the top of his agenda; he also developed industrial strategies to promote growth; and he was also committed to bolstering the Conservatives “compassionate” credentials — for instance with Starter Homes. So none of these policy pledges are new. It might be that May differs from her predecessors because unlike Cameron she actually intends to deliver on these promises.

But I’m sceptical. For one simple reason: whilst promising to increase the role of the state, May is quietly insisting that ‘the government continues with its intention to reduce public spending and cut the budget deficit’. In fact, not even that quietly. This is a Prime Minister who uses PMQs to defend austerity as ‘living within our means’, and to spread fear about the prospect of ‘saddling our children and grandchildren with significant debts to come’.

Let me point out the obvious: increasing the role of the state isn’t an easy task if you’re also talking about cutting government spending. Journalists who lend credence to May’s promises by describing (as Heath has) her plans for an ‘interventionist state that can regenerate the country and protect ordinary workers’ are, I would suggest, being a little naive.

Far from May being a new bastion for centre-ground compassionate Conservatism — her continuing commitment to austerity places her firmly on the right of the political spectrum, and suggests that she has in no way broken from the neoliberal aim of minimising the role of government.

I should stress that I’m talking primarily about budgetary matters: as in, government investment in welfare and industry. I’m fully prepared to believe (taking into account her track record as Home Secretary) that May intends to increase the role of the state in terms of its disciplinarian function. But then — from Reagan to Thatcher — this has always been a perverse inconsistency in the neoliberal project to reduce the role of the state, and so marks no significant change.

So what exactly is wrong with May supporting austerity? Surely wanting to ‘live within your means’ doesn’t make you a neoliberal right wing nut? It’s just prudent financial management! And besides, didn’t loads of people on the left back austerity? After all, as recently as July 2015, 184 of Labour MPs (80%) voted in favour of the Tories’ Welfare Reform and Work Bill — a major austerity package that included cuts to child tax credits and the introduction of a household benefit cap.

We live in a world in which a lot of people seem to think austerity is Ok. But that doesn’t stop it from being a measure that a number of leading economists, economic organisations and financial journalists have recently spoken out against. And that even prominent Conservative politicians have branded as dangerously ideological. But let’s get back to basics.

The first thing to categorically state is that the defence initially made by Cameron and Osborne for bringing in austerity measures — that we as a nation are burdened by debt, and that (as May puts it) we simply have to reduce government spending in order to balance the budget deficit — is a lie. This is something that the head of Tax Research UK, Richard Murphy, has been arguing for a long time. He points out that having a deficit isn’t like owing someone money. This analogy doesn’t hold because governments have powers that the average debtor doesn’t. The most significant of these is that it can print money.

In fact, that is exactly what we’ve been doing since the financial crisis with Quantitive Easing. QE is basically the Bank of England creating money electronically so it can buy bonds — the intention being to inject cash into the economy. But QE also serves another purpose. Because, many of the bonds that the Bank of England have been buying up are government bonds (IOUs issued by the government so that it can fund its spending plans). £376 billion worth to be precise.

So to put it plainly: the Bank of England has been printing money in order to purchase government debt. For the government — it’s as if it now owes itself money. And so a sizeable portion of its debt has effectively been written off.

This means that with one hand the government has been taking money away from Britain’s poorest (through spending cuts) because it says it needs to clear its deficit, whilst with the other its bank has been busy magicking money out of thin air in order to clear these same debts. In other words, QE makes a total mockery out of the notion that we have no choice but to cut back spending in order to clear the deficit. Whenever politicians argue this — as Theresa May has been doing— they are exploiting most people’s limited understanding of the government’s ability to eliminate debt.

So May’s justification for continuing austerity is false. But recognising that fact is less important than coming to terms with the harm that austerity has been doing to the economy. This is something that it is no longer just people on the left arguing — esteemed economists like Yanis Varoufakis and the Nobel prize winning Joseph Stiglitz. Almost every leading authority on economics is now in agreement on this issue.

For instance, the International Monetary Fund — an institution that is generally considered to be economically right wing — recently published a report in which it asked the question: ‘Is there really a defensible case for countries like the United Kingdom to pay down the public debt?’ In other words, are the Conservatives justified in building up an austerity programme on the basis that they need to clear the government’s deficit?

The report answers in the negative. Definitively. But it also goes beyond this by arguing that ‘episodes of fiscal consolidation have been followed, on average, by drops rather than expansions in output’.

In other words, struggling to pay off public debt — as is the whole raison d’être of austerity — is usually followed by a drop in growth. The report argues what to some might seem obvious: that reducing state spending during a recession (and so cutting off one of the few remaining ways of generating wealth during a time of decreased economic activity) prevents growth.

And yet, surely the IMF’s suggestion that in the UK austerity has hindered growth is wrong? Hasn’t the last Conservative government’s austerity agenda inaugurated a period of recovery and resulted in a dramatic rise in employment — something that neoliberals argue is a result of balancing the deficit and so giving markets an incentive to continue investing in the UK?

We hear these claims a lot — and I can see no other reason for May continuing Cameron’s austerity programme. And yet they are deeply questionable. Andy Haldane, chief economist at the Bank of England (again — not exactly a bastion of radical ideology) has had some uncharacteristically stern words to say on the subject of the so-called recovery.

In his speech entitled Whose Recovery? he recently pointed out that the much lauded growth in GDP (national income) doesn’t factor in population growth — and that once this has been taken into account, GDP can be seen to have only grown by 1% since 2009. The truth is, Haldane argues, average household income has ‘effectively stagnated’. In parts of the UK (for instance the North East of England), wealth is actually down.

An even bleaker picture has been painted by the chief Economics commentator at that Bolshevik rag the Financial Times, Martin Woolf. Woolf argues that austerity measures have brought about ‘the slowest British recovery on record’; weakening the economy ‘relative to what might otherwise have happened’ by bringing about a prolonged period of ‘dismal underperformance’. So, claims about growth might be doubtful. But what about job creation?

Though employment has undoubtedly risen since 2010 (which is to be expected during an economic recovery, and which also of course reflects the steady flow of economic migrants into the UK economy) — the crucial caveat, as the TUC have made clear, is that only 1 in 40 jobs created between 2008 and 2014 were full-time.

So it may be that there are more jobs — but this simple statement masks the reality that they are predominantly poorly paid, part-time jobs. In reality, we in the UK are suffering from the second biggest fall in wages out of the 29 counties in the OECD.

This would all appear to vindicate the IMF’s claim that austerity results in ‘drops rather than expansions in output’. And it pours cold water on all claims that austerity has hastened our recovery. In fact, this is something that many within the Conservative Party have been forced to admit (even if the bulk of the Labour Party remained silent…). Iain Duncan Smith’s letter of resignation to Cameron in 2015 (in which he criticised Cameron for removing the ‘safety-net’ for the least advantaged with his austerity measures) was largely derided as political opportunism. But let’s remind ourselves of what he actually said.

In it he wrote: ‘I am unable to watch passively while certain policies are enacted in order to meet the fiscal self imposed restraints that I believe are more and more perceived as distinctly political rather than in the national economic interest.’ Even Duncan Smith appears to acknowledge that austerity is both ideological and damaging for the economy.

But not Theresa May. Theresa May welcomes Osborne’s plans to create a budget surplus (the ultimate reward for massively scaling down government spending), insisting: ‘We have not abandoned the intention to move to a surplus; what I have said is that we will not be targeting that at the end of this Parliament’.

In short: she remains committed to an agenda that the IMF, the Governor of the Bank of England, the lead commentator of the Financial Times and even Iain Duncan Smith have conceded dampens growth and limits job creation. And let us be in no uncertainty about what the cost of this has so far been.

As Danny Dorling (perhaps the country’s leading social geographer) has pointed out: we are not in a fit state as a nation for such measures. Inequality levels have not been this extreme since the 1930s: the richest 1% in the UK own over half of the total personal tradable wealth, whilst the bottom 50% own only 6%. Describing the impact of austerity in this context, Dorling cites figures produced by the Public Faculty of Health suggesting that in 2013 cuts to services resulted in 23,000 early deaths.

A genocide in other words. All in the name of paying off the nation’s debt — when in fact, under Osborne national debt rose by trillions. Surely all of this should have been enough to provide May with an excuse to abandon the austerity project? Especially given the opportunity for a clean break provided by Brexit? But apparently not.

And yet she is still being heralded in the press as a centrist committed to expanding the role of government and bringing about greater levels of social cohesion. To briefly reflect back on John Gray’s claims that May has abandoned neoliberalism: I am intrigued to discover how exactly May intends to exceed Cameron’s £4 billion industrial strategy programme given her plans to further cut government spending and to create a budget surplus. Or in what way exactly she hopes to assist the 1.8 million people in the UK awaiting social housing.

It’s worth adding that in the wake of Brexit, May’s continuing commitment to austerity seems all the more likely to end in disaster. As Richard Murphy explains, once the Brexit deal has been confirmed we are very likely on the brink of another recession. If this becomes a reality, the best means available to us to counteract the ‘falling consumption and investment’ will be ‘increased government spending’.

Let’s just see if she puts her money where her mouth is.

7 Comments

  1. Imran Khan says:

    In response to your question. I have no idea. Do you?

  2. Bazza says:

    The Tories and the rich and powerful are really worried about the genuine anti-Neo Liberal approach being offered by Jeremy Corbyn and the mobilization around him.
    They are pretending to be the new centre; talking moderate but acting hard right wing.
    All the evidence from 2010 onwards suggests that they are the Party of the rich and powerful – tax cuts for millionaires, corporation tax cuts for their big business friends, tax cuts for private landlords with multiple properties, tax cuts for hedge funds of £145m (after hedge funds gave £50m to the Tories), why even increased tax relief for grouse moor farmers, and no or very few cuts for Tory Southern Councils – so don’t worry rich and powerful and the better off in Tory areas – this austerity stuff was never meant for you.
    Mediocre May even had the Gaul to say they were for the many and not the few at the Tory Conference then failed at the first hurdle over fracking, supporting the big business Frackers (the few) against local communities (the many).
    Then the political imbecile says those who see themselves as citizens of the World “are citizens of nowhere” when funny it is big business and TNCs who have no locality to a particular country, their only loyalty is to profits and capital.
    And as Polanyi argued “any group which threatens the primacy of the market will be eliminated” hence Thatcherism and the breaking of trade unions thus heralding in the age of cheap labour with the ultimate obscenity of the mass use of exploitative zero hour contacts.
    Thus the rich and powerful through their monopoly of the media must viciously vilify Jeremy to try to maintain their monopoly on power.
    So it’s all an act; it’s just a pretence; the greatest con trick since the Greeks gave the Trojans a wooden horse!
    Our task as socialists is to make May’s Masque of Pandora slip but the central question is CAN the CONservatives CONTINUE TO CON?
    The Tories are kegging it!
    Solidarity!

  3. Pat Sheehan says:

    I have been watching the political tapestry unfold in the UK for the past 40 years or so, following successive, so called, ‘democratic’ government’s hideously pathetic attempts to manage the economy, national security and the justice system amongst other things for left right and centre, wherever that is. And all totally immune to accountability of any kind or retribution in any form.
    As I’ve grown older I have become progressively more appalled and more recently, more stunned, at the astonishingly incompetent performance we are obliged to observe from our ‘directors’, ‘managers’ and their cohorts.
    It is my fundamental belief that the first thing we need to do in the UK is abandon this total lunacy that we currently employ as a method of managing – fallaciously branded democracy – that is leading us to the edge of ruin and adopt a very different method of managing our people and assets for the benefit of the people and the care of the asset . What we have is incapable of changing anything for the better for most people and can be seen to be perfectly engineered to make absolutely sure of that fact.

  4. Bazza says:

    No loyalty to any particular country, their only loyalty is to profits and capital.

  5. Bazza says:

    Pat, I think on this voice of the democratic left website we should have faith in a grassroots, bottom up, left wing democratic socialist approach.
    Engaging people through democracy from this perspective I believe we can collectively transform UK society and working with international partners transform the World.
    ‘Socalism’ failed as Rosa Luxemburg intimated because it was “bourgeois socialism” (top down, elite, undemocratic, with leaders taking the power for themselves – some traits perhaps shared by some of the Right in Labour?

  6. David Pavett says:

    But I’m sceptical. For one simple reason: whilst promising to increase the role of the state, May is quietly insisting that ‘the government continues with its intention to reduce public spending and cut the budget deficit’. In fact, not even that quietly.

    Is there not an assumption here that (1) the Tories want to decrease the role of the state and (2) that it is left-wing to want to increase it.

    The trouble with (1) is that it takes Tory rhetoric at face value. Wanting to decrease expenditure on public services is not same thing as reducing the role of the state as the massive amount if quantitative easing under Cameron/Osborne shows. As Varoufakis keeps saying what the Tories are doing is not austerity it is class warfare.

    The problem with (2) is that it ignores the fact that intelligent Tories know perfectly well that the state is essential to the survival of capitalism. This can even go as far as recognising the need for “public” ownership in certain circumstances as we have seen with the banks. It is worth remembering that the first government to nationalise the railways was that of Bismark – not known for any socialist leanings.

    So it may not be so naive to accept that May believes in an interventionist state. The issue is rather about the mode of that intervention. Don’t judge neo-liberals by their rhetoric, judge them by what they do. Then the willingness to increase state involvement in its disciplinary function does not look like a “perverse inconsistency”.

    The issue of balanced budgets is one which is far from resolved on the left. McDonnell says they should be the rule in normal times. Many disagree such as MMT economists. It’s a debate not yet even touched on in the LP.

    I am no economist but is there not some confusion in this piece between debt and deficit as in “… the government has been taking money away from Britain’s poorest (through spending cuts) … to clear its deficit, whilst with the other its bank has been busy magicking money out of thin air in order to clear these same debts”?

    Is it consistent to argue that (1) “struggling to pay off public debt — as is the whole raison d’être of austerity — is usually followed by a drop in growth”, (2) “GDP can be seen to have only grown by 1% since 2009”, AND (3) “Though employment has undoubtedly risen since 2010 (which is to be expected during an economic recovery” AND that the UK experuence would “appear to vindicate the IMF’s claim that austerity results in ‘drops rather than expansions in output’”? I understand that it is also said that “there are more jobs … [but] we in the UK are suffering from the second biggest fall in wages out of the 29 counties in the OECD” but I am still not sure that this all hangs together.

    I am sure that what I take to be the main thrust of this article is correct: that increased government spending is required in a recession and that the government is using the target of a balanced budget to wage class war. I wonder though if the attempt here to put some flesh on the bones of that claim has been entirely successful.

    Finally can we please reserve the word “genocide” for attempts to kill a whole genus? Its use in this article seems to me to devalue it.

    1. Mervyn Hyde says:

      Neo-Liberalism is “Class War”, we provide socialism for the rich with tax cuts and QE, and capitalism for the rest of us by transferring the tax burden on to us along with stealing our public assets and services.

      None of this has happened by accident and has been carefully planned and executed for many decades now. Thatcher adopted the Neo-Liberal language that masked the truth of their policies, if we are to convince people how all of this came about against their better interests, then we have also got to change the language we use to explain it.

      It is up to us at the grass roots to drive the economic debate not to sit around waiting for a politician to wax lyrically on our behalf.

      The simple facts are, we don’t need to borrow our own money, the deficit is a lie and can be written off at a stroke the Bank of England’s pen, and we can spend directly into the economy without indebting anyone.

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