The Cedar Lounge Revolution

Austerity as politics… December 17, 2013

William Keegan in the Observer at the weekend asked a very sensible question about the direction of UK economic policy and its political meaning. Keegan notes that the general reception of the autumn statement has been that it had two key aspects, one being the rise in the pension age and the other being the problems Ed Balls had in responding to it. But as Keegan notes:

The real significance is that – as the statistics in the statement itself and the report from the Office for Budget Responsibility confirm – George Osborne’s strategy has proved a lamentable failure, and that, not content with that, we are in for more of the same. Instead of attacking the economy’s broader problems, not least its debilitated manufacturing sector and associated weak overseas trade position, this government continues to be obsessed with balancing the budget and not the economy.

And that’s a fair point. And he notes that this it is the internal contradictions in Tory/Liberal policy, though heavy on the Tory in that equation, that are generating problematic outcomes for them. Or, are they problematic?

Of course, it is taking a long time to do that, not least because its de facto anti-growth approach actually limits its ability to raise revenue and reduce the deficit – a deficit, incidentally, that the Debt Management Office has no difficulty in financing, with average debt maturity of 14 years or so.

And Keegan reminds us of one very pertinent fact:

The story so far is that George Osborne supported Labour’s spending plans in the runup to the crisis in 2007-08, opposed the 2008-09 economic stimulus that prevented the economy going into freefall, then withdrew his support as soon as he became chancellor.
His withdrawal was rationalised by the almost laughable argument that the state had to draw back in order not to “crowd out” a revival of private sector investment that, of course, never came. Somehow or other, monetary policy was going to support the economy, despite the fact that the banks had forgotten that their primary function is to lend money and give credit.

And he quotes some astounding figures are regards the UK fiscal contraction, which was the largest in the G7. This was a political, not an economic decision, and as Keegan continues, this was shaped for a very particular purpose, even if it is only now that that purpose is being publicly admitted:

But the real significance of the autumn statement is not that Balls had an off day but that Osborne has dug in and set the seal on a policy of years of further contraction of the public sector, with all that means for the poorer sections of the population.
A leading Conservative summed up the true significance of Osborne’s promise of yet more austerity in the second term – if, that is, this disturbing coalition is undeservedly returned to power. It was Andrew Tyrie, the MP for Chichester, whom I have long admired for his impartial chairmanship of the Treasury committee, but who came out in his true-blue colours with a fawning tribute to the chancellor and a plea for a small state and tax cuts.

As Keegan continues:

You see the point? As far as the right is concerned, the austerity policy that held back growth for three years, and is particularly directed at the poor and vulnerable, is not really about the need to cut the deficit; it is about making the room for tax cuts.

And that’s it really. Austerity isn’t a glitch, it’s the feature. This is the purpose of the exercise, not an unfortunate, but unavoidable, catalyst for recovery. Keegan has a few pertinent thoughts for Osborne, not least being that for all the rhetoric the eurozone remains the UKs ‘biggest export market’. But it is the central point that austerity is a political policy, directed in such a way as to maximise as best as can be achieved, political outcomes for the Tories.

That it appears to be failing even on its own terms is ironic, but one few will take any great satisfaction in given the trail of human misery that it represents in relation to unemployment, changing labour market conditions and so forth.

It seems clear that in some respects the Coalition in London is perhaps the worst possible government to have arrived in power at this particular historical juncture. And despite the bullishness of the Tories, one wonders if they realise that as it stands there is a very real disconnect with much of the British electorate (though it is also apparent that a significant divide has widened in relation to the geographic support for Toryism in Southern England in particular).

It’s always worth keeping a close eye on UK Polling Report, from YouGov’s Anthony Wells which has a good, and dispassionate overview of British polling data (and also some useful material on the winding path of the current Scottish referendum in relation to support or otherwise there for the central contention).

Well’s polling average is telling. Tories on 33%, Labour on 39%, LD’s on 10%, UKIP 11% and others 3%, and an overall Labour majority forecast of 78 seats. Polls demonstrate a consistent LP lead since 2011 (bar a number of outliers) and an absolute lead since 2012.

It seems to me that Osborne’s plans were long in the making, but it is possible that given the resilience of the LP vote they were given a more emphatic push as a bid to claw back support from UKIP. In some ways that has worked, UKIP is generally down from the high teens votes it has enjoyed at various times across the last number of years, but it’s not worked well enough, because it hasn’t consolidated in an enhanced Tory vote.

And there’s always the danger of a backlash. Miliband has had a good year, there’s little reason that can’t continue. The fact of coalition in some respects undermines Cameron and Osborne’s ability to craft an entirely coherent message to attract voters. Does that mean a Labour government is inevitable? No, absolutely not. Indeed a lot of political analysis points to Labour being the largest party and being dependent upon the Liberal Democrats, what remains of them. Should that eventuality come to pass…