Truss campaigned on presenting herself as the new Margaret Thatcher and, to be fair to her, she has been true to her word. The budget Liz Truss’ new government has just announced is straight out of the neoliberal playbook: tax cuts for the rich, deregulation for the City, and handouts to massive corporations.
All in all, the budget contains £45 billion worth of tax cuts. The removal of the top rate of income tax means that someone earning £1 million per year will receive a £55,000 reduction in their tax liability. The richest 5% of households will receive 50% of the benefits of the tax cuts announced today.
While such a budget would have been met with applause from most liberal and right-wing commentators had it been introduced forty years ago, the reaction from the establishment commentariat was slightly more muted this time around.
The pound has crashed and commentators are once again—without a hint of irony—referring to the UK as an emerging market economy. JP Morgan has issued a press release announcing the start of the ‘Kwarteng boom’—a tongue-in-cheek reference to the Barber boom, which ended in disaster.
Paul Johnson, director of the IFS, also noted the similarity with the Barber tax cuts, pointing out that that budget was remembered as ‘the worst of modern times’. And Tim Montgomerie issued a congratulatory tweet to the IEA which, he claimed, had ‘incubated’ politicians like Truss and Kwarteng, noting that the UK is now the IEA’s ‘laboratory’.
The IEA, of course, was created out of the networks set up by the original neoliberal economists of the 1980s. It was instrumental in successive Thatcher governments and in spreading the neoliberal message around the world. We already live in the IEA’s world.
And this is precisely the world from which most people want to escape. Polling for IPPR in 2019 found that just 2% of people want to see the economic status quo continue, with nearly 60% stating that they believed the economy worked in the interests of the rich and big business. And the British Social Attitudes Survey recently found that 58% of the population consider themselves economically left-wing, next to just 31% for right-wing.
Most of Truss’ policies will be demonstrably unpopular with an electorate that came very close to electing a socialist as Prime Minister in 2017. Since then, the public has, if anything, become more welcoming of socialistic economics.
The largest poll ever conducted on the subject recently showed that the vast majority of people want public ownership of energy, water, and rail. And the response to Mick Lynch’s media rounds during the RMT’s strike action over the summer was overwhelming: 58% said the strikes were justified in a poll taken at the time.
Why, then, is Truss going ahead with what is highly likely to be a very unpopular budget? The obvious answer is that the Conservatives are the party of capital, and the budget is likely to benefit capitalists.
But while this is true in a narrow sense over the short term, Truss’ budget is likely to have far more destabilising effects over the long run.
First, her package of tax cuts and deregulation will do little to spur growth in the context of a deep cost of living crisis. The UK economy is dominated by consumption, and the vast majority of people will be considering how to cut their consumption in these tough economic times, meaning this component of GDP is likely to fall in the coming months.
Truss will claim that tax cuts for businesses will boost investment, creating jobs and increasing incomes. But the evidence suggest otherwise. We have had more than a decade of corporate tax cuts and UK private investment has remained extremely subdued over this time—especially if you look only at productive (rather than financial) investment.
In this context, the only way to generate profit is through the extractive rentier models that UK corporations have pioneered since the 1980s. But the issue with extractivism is that you can’t do it forever. Once you’ve enclosed all the land, privatised all the public services, and buried people under a mountain of debt, you can’t repeat the process.
Second, rising inequality and poverty are likely to lead to significant political instability. We are going to see a wave of strike action of the kind not witnessed since the 1970s in response to the cost of living crisis. And this is likely to be accompanied by campaigns of civil disobedience and protest.
In truth, the role of the Conservative Party within British capitalism is not so much to enrich capitalists as it is to shore up capitalist social relations. There is a subtle but important difference.
Capitalist societies are prone to crises—and a lot of the time, these crises take the form of collective action problems. In a financial crisis, if one person sells their distressed assets, they may profit in the short term, but asset values will fall for everyone. In a recession, if one business lays off their workers, they may profit in the short term, but unemployment will rise and demand will dry up.
The role of the state is to coordinate individual capitalists to allow them to overcome these collective action problems. It can act as a buyer of last resort of distressed financial assets, or employ workers directly to shore up demand. In doing so, it may impose costs on certain sections of capital over the short term, but it shores up the stability of capitalism over the long-term.
Truss doesn’t seem to have understood this point. She appears to have a very shallow understanding of the role of the state in a capitalist society, believing that if she dishes out cash to the wealthy, she will be rewarded.
Again, this may be true over the short term. But Truss’ slash-and-burn Thatcherite agenda risks creating huge new problems for British capitalism down the line. Liberal economists like Paul Johnson realise this, and they are concerned. Foreign exchange traders seem to realise it too.
How long before British capital realises it needs a slightly steadier hand at the helm?