What should we expect from Chancellor Rishi Sunak’s Spending Review today? Not austerity – at least not yet, at least not for most. The hedge fund chancellor was keen to emphasise that point with Andrew Marr on Sunday, that there “will not be austerity” now, but at some point borrowing will “have to be grappled with”. He seems to have an ally in austerity-guru IFS director Paul Johnson, who has said that tax rises will be needed at some point but are not “super-urgent”.
“We are still in the position of being able to borrow incredibly cheaply and really wanting to protect the economy,” Johnson said.
Of course Sunak can borrow incredibly cheaply – the vast majority of Covid borrowing has been from the Bank of England, which the government owns. Even Andrew Neil, in his new role as waspish commentator, has said the Treasury could just write-off the 25 per cent of government debt it owes the BoE. Isn’t money creation a wonderful thing if you can get your hands on it? (Incidentally, as George Kerevan has pointed out in The National this week, this would not be available to an independent Scotland under the current SNP Growth Commission proposals for Sterlingisation, which would mean iScotland “really would have to borrow other people’s cash from the City of London”, at a premium.)
Nonetheless, Sunak is apparently planning a public-sector pay freeze, which is a nice way of treating key workers who have suffered through the pandemic. An additional £3 billion of NHS spending is planned, which will drip through to Scotland in Barnett Consequentials. There will also be an infrastructure spending boost, but again the devil is in the detail – what are these projects for, and how is the funding for them distributed? It’s important to understand that the Tories can both spend money on the public sector and degrade public services all at the same time – much of the covid-19 NHS spending has been an outsourcing binge. The Tory project of weakening public services to the point that there is a clamour for private sector alternatives continues.
The British economy is plagued by deep, over-lapping structural problems: an unprecedented stagnation in productivity that has now lasted for about 15 years, deep regional divides between London/south-east and the north, a growing trade deficit increasing over-reliance on foreign capital, low-levels of fixed capital formation meaning new productive industry is not being generated, and massively over-inflated land values increasing returns to rentiers but making the costs of production and services prohibitive. If Sunak wanted to, the pandemic crisis would be the opportune time to restructure the British economy to address these systemic problems, but no such vision appears to be emerging. Given Britain leaves the EU in just over a month, one would think there would be more of a sense of vision about a new direction for the economy, but Sunak can’t seem to see past furlough.
As Perry Anderson points out in a recent essay on Britain: “For all the talk of a radical change in the economic policy set-up, it is just as likely that the end result is a very British attempt to “muddle through” with a model which is itself not working and of which one of the key props (EU membership) has been knocked away.”
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