New divide as well as new deal

27 November 2008

The politics of economic consensus is dead. This is the crucial implication of the shift in government policy embodied by the Pre-Budget report, and the fact that it took a recession to wrench open a divide between Labour and Tory policy is deeply revealing. Furthermore, it leaves, for the first time in a long time, a clear and crucial area of dispute in British politics which is likely to shape debate until the next general election. The consensus that developed between Labour and the Tories in the nineties was remarkable. As Labour lurched to the right under Blair, it came to adopt the basically neoliberal approach already endorsed by the Tories, which emphasised a lack of government intervention, ‘light touch’ regulation, controlling inflation as the main aim of macroeconomic policy and a denigration of fiscal policy as a tool of economic management.

There were divergences, of course. Labour emphasised the need to use the proceeds of economic growth to invest in public services, while the Tories, as ever, veered towards an emphasis on tax cuts as an article of faith. However, given the historical background of bitter disagreement during the Thatcher era, the degree of agreement on economic policy was striking.

Indeed, with the accession of Cameron to the Tory leadership the convergence became even greater, as Tory policy moved towards the New Labour position on investment in the public sector. This consensus was all very well so long as it worked. New Labour was always going to be reluctant to challenge the neoliberal model of growth so long as it brought with it huge tax receipts which could be used to fund increases in public spending. The Tories are wedded to neoliberalism as a matter of ideology since Thatcher, and found it convenient to accept New Labour’s emphasis on increased public spending when not doing so proved electorally disastrous. However, the recession changes everything.

When the economy is growing, no-one wants to tamper with the model that keeps it growing too much. When it breaks down, however,

basic questions about what role is accorded to the state in economic management rise ineluctably to the surface. Politicians can either accept the logic of neoliberalism and argue that just as the economy is self-regulating in periods of growth, it will be likewise in times of recession, and to hell with the social consequences in the meantime; or it can argue that government action can and should be used to limit the economic and social consequences of a downturn.

Labour’s acceptance of the latter path shows that the government – but not the opposition – has learned from the mistakes of history. In the 1930s and early 1980s, Tory (and National) governments did what the same party proposes we do now – they cut public spending and pursued the untimely objective of balancing the budget while people suffered. Just when government action was needed to boost growth and employment to prevent the human catastrophe of recession escalating, government action instead perversely did the opposite, and what followed was eye-watering unemployment and contraction in output.

Cameron’s reversion to these policies shows that the Tories have learnt nothing and would do the same again. Just as demand in the economy slumps, causing unemployment and recession, he wants to put the boot in and reduce it even further.

Cameron reheats Tory platitudes about a ‘tax bombshell’, while ignoring the fact that a fiscal stimulus today can limit the damage likely to be wreaked on the British economy, and therefore its ability to pay back the debt, tomorrow.

Furthermore, Cameron’s regression to Tory barbarism shows a deep indifference to those who will suffer from a recession in the coming weeks and months.

In truth, Darling has probably not gone quite far enough – if he scrapped ID cards and Trident and put these savings towards the fiscal stimulus, he could have made the recession even shallower and ditched two stupid policies in the process. However, the fact that Labour has not chosen the Tory path of arrogant inaction means that the Labour Party still has a fundamental willingness to use state action to counteract the injustices and follies of the market system, however hidden it may have seemed at times. It puts Labour firmly on the side of ordinary people against the impersonal pyrotechnics of the market. This, in terms of the next General Election, marks out clear dividing lines and means one thing – game on.

George Owers is a 2nd year SPSer at Jesus and Publicity Officer of Cambridge University’s Labour Club