Last year, as the Conservative Party dragged the country into a state of all out chaos, Keir Starmer and Rachel Reeves saw an opening. With Boris Johnson accused of reckless management of both his own and the country’s finances, and Liz Truss nearly causing a total financial meltdown with her neo-Thatcherite budget, the new Labour leadership believed that they could position themselves as the party of ‘sensible’ economics.

Reeves announced that Labour would commit itself to becoming the party of ‘ironclad’ fiscal discipline. A Labour government would, Reeves said, borrow only to invest, committing to closing the deficit in day-to-day spending over the course of its time in office.

Reeves’ announcement probably seemed like very clever politics at the time. The Conservatives appeared to have abandoned all pretence of fiscal rectitude, preferring instead to dish out billions of pounds worth of taxpayers’ money to private companies in the form of dodgy procurement contracts and unfunded tax cuts.

The Labour Party, which had been dogged by the absurd accusation that its reckless spending caused the financial crisis of 2008, finally had the chance to fight back. In appearing to embrace austerity, Starmer’s Labour might win over voters concerned about the state of the economy, while securing the confidence of finance and business.

This reasoning was always weak. After more than a decade of cuts that saw public services crumble while the rich got richer, austerity has become politically toxic.

2017 was the first time since the financial crisis that more people wanted to see taxes raised to facilitate higher public spending than those who wanted tax and spending levels to remain as they were. The balance has remained in favour of greater spending ever since.

Until recently, most politicians seemed to recognize this shift. Arguably one of the single greatest factors explaining Jeremy Corbyn’s rise to power was public antipathy towards spending cuts. Boris Johnson’s and Dominic Cumming’s populist economic rhetoric sought to rid the party of the baggage associated with Cameron and Osborne’s austerity programme and instead promise funding for ‘levelling up’ to reduce regional inequality. 

But Rishi Sunak, Jeremy Hunt, Keir Starmer and Rachel Reeves all seemed to have missed the memo. Over the last year, the political common sense has shifted in favour of austerity once again—even as public attitudes remain firmly in favour of greater public spending.

Austerity was never an intuitively popular policy. Politicians, policymakers and private interests spent a huge amount of time and energy after the financial crisis of 2008 manufacturing consent for spending cuts with emotive arguments and dodgy economic modelling.

Why was it necessary to build public support for spending cuts in this way? Because the financial crisis had damaged the legitimacy of our political economic system so profoundly that demands for radical economic reform were everywhere.

With governments having spent unimaginable amounts of money bailing out the banks, what was to stop ordinary people demanding increases in health and education spending? What was to stop them from demanding that the bankers be made to pay for the clean-up after the crisis they caused?

The idea that the nation had somehow maxed out its credit card—not on bank bailouts, but on overgenerous welfare payments—provided a convenient response to those who argued that the scale of the financial crisis demonstrated the necessity of a fundamental shift in how the economy works. Everyone wants to increase spending on the NHS, so the argument goes, but there simply isn’t any money left.

Meanwhile, the economic stagnation that resulted from the introduction of austerity also provided a convenient way to discipline workers who might have benefitted from ongoing stimulus spending.

After the 2008 crisis, UK workers experienced the longest stagnation in wages since the Napoleonic wars. With the social safety net being deconstructed around them, most workers were simply too scared to fight back. The austerity agenda had successfully terrified them into submission. 

This logic has not shifted much in the years since. When the pandemic hit, the country was once again faced with a deep economic crisis, to which the government responded by distributing billions of pounds to private corporations. Once again, this created a legitimacy crisis, which was, once again, countered by the refrain ‘there is no money left’.

But, watching the Conservative Party implode in the summer of 2022, Reeves and Starmer believed that, this time, they could beat the Tories to the punch. Even if austerity wasn’t particularly popular, the pair thought that they could win over powerful interests in business, finance and the media by promising to cut spending and reduce the deficit.

They may well be right. The Conservative Party is a shell of its former self, beset by infighting and bereft of new ideas. The British ruling class undoubtedly realise that change is needed for everything to stay the same. And the Labour right stands ready to play its historic role as ‘capital’s B team’.

The only issue is that, at the current conjuncture, ‘more of the same’ is a recipe for disaster. Without significant increases in day-to-day spending—not just investment—the NHS crisis will not be resolved. Taxes on the rich do need to be raised given current levels of inequality, but over the short-term, Reeves and Starmer won’t be able to raise enough money from taxation to fix our public services while abiding by their fiscal rules.

Support is also urgently needed to support those on the sharp end of the cost of living crisis, not to mention those already pushed into poverty by more than a decade of austerity. As the Bank of England continues to push up interest rates, the pain on the average household is only going to increase.

Some have argued that the fiscal rules give the Party plenty of room to invest in the kind of Green New Deal that would boost wages, increase productivity and combat climate breakdown. But Reeves recently backtracked when questioned about the cost of Labour’s proposed Green Prosperity Plan, arguing with a straight face that ‘fiscal credibility’ was more important than the future of humanity.

Labour may well win the next election simply by convincing the British establishment that the country is safe in their hands. But they won’t be able to solve any of the crises the country is currently facing while abiding by their fiscal rules—they might even make things worse.