Rishi Sunak’s comprehensive spending review returns British politics to its pre-2017 shape: a Conservative party arguing in favour of more cuts to public spending and a Labour party arguing in favour of greater levels of investment and job creation, at least in theory.
The politics of that approach was very lucrative for the Conservative Party at first, but by 2015 the party had started to run out of cuts that a) would raise sufficient revenue to meet their targets and b) weren’t politically toxic for the Tory party’s prospects.
There’s a dead-end argument in Labour circles about the role of Jeremy Corbyn’s leadership and the Labour party’s transition to a much clearer anti-austerity position in 2015: the reality is that Corbyn’s election as Labour leader was in of itself part of the same set of factors that caused the Conservatives growing difficulties in the 2015-7 period. He was both cause and symptom.
The policy reality is that the coronavirus crisis means that government debt is going to be at a permanently higher level for the rest of our lives, and that there simply isn’t sufficient capacity left in the British state to tackle that with cuts to spending or tax increases. You cannot get political consent for the required reductions in spending or increases in tax to actually reduce debt to something resembling pre-coronavirus levels for some time.
Three measures in Sunak’s announcements all, in different ways, demonstrate the political and policy difficulties of a fresh round of cuts. The spending review continued the unbroken pattern of local government austerity under the Conservatives, who even as they rhetorically abandoned the language of austerity after 2017 and lavished greater sums of money on health, education and the policing in a successful bid to see off Corbyn’s Labour, continued to oversee painful reductions in local authority spending.
Sunak has handed local councils a measure of relief by increasing their capacity to raise council tax. Now, of course, tax rises in a recession are also a form of austerity, and just as George Osborne sought to devolve blame for the cuts onto local councils, Sunak is now seeking to devolve blame for tax rises onto local councils. The problem is that the measure may not work politically and because of the pressures on incomes, it may fail to raise sufficient revenue to get cash-strapped councils out of their hole.
Then there is the public sector pay freeze for workers outside of the National Health Service. There are two consequences to the public sector pay freeze: it is painful for public sector workers at the bottom half of the income distribution, though these employees are the ones with the least freedom to move on to other work, and will in any case receive a pay increase of at least £250. This has the consequence of making the argument that “the public sector should have to absorb a wage freeze because the private sector has it tough” redundant: it’s in the bottom half of the income distribution that the private sector is being outpaced by the public sector, and the bottom half is not having its wages frozen.
It’s in the top half of the income distribution, which is seeing a freeze, where wages in the private sector are now better than the public sector. This is part of the reason why the British state has been facing a retention crisis among doctors, teachers, senior police officers and other highly-qualified public sector workers.
There are two risks here for Sunak: the first is that the painful consequences of the freeze deepen the United Kingdom’s economic woes and we don’t recover all that quickly from the coronavirus recession. The second is if we do recover from the coronavirus recession quickly, or if vaccination reopens the option of a lucrative and life-enhancing move to Australia or New Zealand for teachers or doctors, the British state ends up facing the same pressures it did by 2017, and with it, the same political difficulties that saw the government lose its majority in the election of the same year.
Then there is the prospect of a parliamentary defeat over plans to cut the foreign aid budget from 0.7 per cent of GDP to 0.5 per cent. There are more than enough Conservative MPs who oppose the cut to the foreign aid budget to inflict a defeat on the government; it is not clear that enough of those MPs are willing to go so far as to vote against the government. But it is possible that the government ends up having to retreat on the foreign aid cuts, retreat on the public sector pay freeze and provide more direct funds to local government.
The truth though is that even if these measures do end up happening, they aren’t sufficient in of themselves to meet the rhetorical ambition on debt reduction. The £4bn cut in foreign aid will be very heavily felt in some of the poorest parts of the world and may also compromise the government’s climate diplomacy and its global green agenda, but it is small beer in the context of government spending. When you factor in the increase in defence spending, it means that the United Kingdom’s foreign policy commitments are going to be as costly by 2025-6 as they are today.
In terms of the supposed challenge of beginning to slow, let alone reduce the United Kingdom’s coronavirus debts, in fiscal terms, we’re talking about announcing an ambitious plan to save up for a mortgage by taking away your kids’ weekly Mars Bar: even if you can pull it off, you’re not going to be completing on a house any time soon.
That needn’t be a problem provided that jobs, wages and the economy continue to grow, and in many ways it is the effectiveness of the infrastructure spending and projects Sunak announced today that will matter a lot more than his cuts or any tax rises he might have planned down the line, both to the British economy and to the Conservative party.
What I suspect will matter is that the foreign aid cut – to my eyes far and away the most likely of the three measures to survive intact until 2024 – is that it allows the Conservatives to have an argument about austerity, which remains popular in theory, with the Labour party, even though in practice the cut in question is small fry in terms of government spending, while avoiding having to have an argument about spending cuts or tax rises in practice.
Despite the fact the foreign aid cut is opposed by David Cameron, it is in many ways a political move that comes straight out of his playbook: a painful cut, but one that happens to someone else’s voters, far from the view of the people that Sunak needs to keep onside if the Conservatives are to be re-elected in 2024.