A large increase in spending, in an area beset by cuts in recent years. A victory for the Prime Minister over a typically recalcitrant Treasury. An unexpected announcement – “in the teeth of the pandemic”, as Johnson put it – deemed vital to “keep the British people safe.”
One could be forgiven – on hearing the above – for thinking that the Conservative Party had belatedly decided to address one of the myriad issues which have been causing hardship and destitution both during and prior to the coronavirus crisis.
An uplift in Universal Credit, which – even after Sunak’s much-lauded temporary increase – still remains at punitively low levels, perhaps? Or a long-overdue funding settlement for councils, prompted, perhaps, by the recent effective bankruptcy of Croydon council?
Or was it government action to support homeless people: not just during the winter; nor for the duration of the pandemic, but of a scale which would fundamentally fix this avoidable injustice? Or some form of remedial action to address the issues made painfully clear in recent months concerning social care or starving children?
Sadly, none of these areas have been recognised as deserving of the relative largesse being expended, instead, on the military. The government has announced that defence spending will be increased by £16.5 billion over four years; the largest real-terms increase in the defence budget since the days of Thatcher. The UK, then, will remain Europe’s largest spender on defence, as it remains the country with the lowest statutory sick pay in the entire OECD.
This announcement in many ways functions as a kind of encapsulation of Johnsonism. As with much of his rhetoric, it is both backwards and forwards looking: paeans to the halcyon days of frigates and free trade; assertions that future prosperity will be secured by drones, artificial intelligence, and ‘inexhaustible lasers’.
Part of this, no doubt, is simply the economic manifestation of the increasingly all-encompassing culture wars: a vision of the future where Rule Britannia is not just belted out by bellicose boomers, but accompanied by an ensemble of drones emblazoned with the Union Jack.
There is also something else at work here, however. It is important to consider this announcement in the context of recent newspaper reports that the government is planning to introduce a period of pay restraint for public sector workers, as well as reducing the foreign aid budget.
It is a reminder of the words of Ralph Miliband on the philosophy underpinning and inspiring cuts in social provision: “The notion that they are simply designed to reduce public expenditure which ‘we cannot afford’ is spurious. In those areas which it deems desirable – for instance, defence – there is no limit to what the government is able to afford and is willing to spend.”
The risible argument being trailed in the press is that public sector pay needs to readjust, moving into line with the private sector, where wages have come under pressure during this crisis. The reality – as the Institute for Fiscal Studies have recently shown – is that average earnings for public sector workers in the first quarter of 2020 were lower in real terms than in 2010, with public sector pay relative to the private sector falling to its lowest level in decades.
We have just gone through an unprecedented period of pay stagnation, the worst decade for pay growth since the Napoleonic wars. Prior to the onset of the pandemic, as the Resolution Foundation have noted, average real pay had only just reached its pre-crisis August 2007 peak – in other words, there had been no overall earnings growth in the 12 years between 2007 and 2019. Indeed, real incomes for families on low incomes have actually fallen in recent years: in 2018-19, they were no higher than they had been in 2001-02.
At this juncture, it is worth stressing the extent to which – should the government choose to implement these cuts to public sector pay – this would be a departure from the economic consensus.
Self-described neoliberal and Senior Fellow of the Adam Smith Institute Sam Bowman, has argued that the ‘obsession with balancing the books, even during a once in a century pandemic, is pathological.’ Julian Jessop, former Chief Economist of the free-market Institute of Economic Affairs, has argued such an approach ‘makes little sense.’ Andrew Sentance, former member of the Bank of England’s Monetary Policy Committee, described it as the ‘economics of the madhouse’.
In 2010, you could at least notionally claim that there was some academic evidence for austerity when Carmen Reinhart – along with economist Kenneth Rogoff – wrote an influential paper advocating it. Of course, it later transpired to have included spreadsheet errors, but the paper made the case that countries with high levels of debt grow more slowly over time: this was utilised as the intellectual basis for Osbornomics and wider austerity measures.
This time round, however, things are very different. Reinhart, in her role as Chief Economist at the World Bank, is advocating an alternative approach. “First you worry about fighting the war,” she argues, “and then you pay for it.” The IMF – with the important caveat that there is often a large gap between the rhetoric of its research and the conditionalities of its loans – has been telling countries to spend without the prospect of austerity later.
The coronavirus crisis was an exogenous shock to economies worldwide. The UK economy, as the figures above suggest, was particularly poorly placed to manage such a shock. To recover from this crisis requires a course adjustment from the mistakes of the last decade. Incomes need to be supported and increased, building demand across the economy.
This needs to be coupled with a structural shift which reduces the power of rentiers and asset-owners, particularly landlords. Expansionary spending should be focused on green infrastructure, which will allow us to both grow out of this crisis and make the investments necessary to avert the worst possible climate outcomes. Clearly, this is not the path the government is pursuing.
Bafflingly, Labour have given the government the space to claim this is what they are doing. In June, the party took the decision to postpone any major announcements on green measures until closer to the 2024 election.
While a Green Economic Recovery report was recently announced, albeit with minimal fanfare, this represented a retreat from previous policy commitments. Unsurprisingly, this has allowed the Conservatives to wrestle the mantle of the Green Industrial Revolution from the Left and instead put forward a derisory package, committing significantly less than countries such as France and Germany.
Cutting £15 billion in public sector pay – the figure that Centre for Policy Studies, the think-tank proposing the measure, suggest could be saved – at the same time as they boost defence spending by £16 billion would be egregious even by the standards of this present government.
Politically, however, it already appears rather smart. As Sam Foster has noted, it has forced this ‘new management’ iteration of Labour into the bizarre position of arguing that “more defence spending is a great idea… and completely unaffordable!”
The depressing corollary of a Conservative Prime Minister trying to assuage his disgruntled backbenchers, and a Labour leader trying to project patriotism and competence, has ended up with what may very well look like a bonanza of drones compensated paid for by salary cuts for public sector workers. As the cronyism and corruption which have been rampant throughout this pandemic have shown, this Conservative government remains adept at looking after its own.
It is perhaps unsurprising, following on from reports showing the Ministry of Defence is preparing for a possible 3.5°C rise in temperatures, with accompanying resource wars, that the British state has decided to split the difference: £16 billion for war; £12 billion for the planet. The nature of the UK’s deeply dysfunctional political economy allows and expedites this kind of reckless governance.
Absent, here, are the levels of union density found in Scandinavia; the mass street protests which, in France, delivered €8 billion in pay rises to health workers; even the boardroom representation afforded to workers found in Germany.
Thatcher crushed organised labour; Cameron, May, and now Johnson appear to have successfully normalised a labour market where pay increases are the exception rather than the norm. Amidst all of this, what is particularly depressing is that Labour – at just the moment when clarity of thought, analysis of class interests, and inspirational vision are most needed – appears to have reverted to its historical role of timidity.