The centrepiece of the government’s economic strategy is to bring the rest of Britain level with London and south-east England in terms of wealth and opportunity. The public remains concerned about regional and income gaps. “Levelling up” – however genuinely believed by some people – is a facade. Boris Johnson’s slogan requires a shift in the scale of public spending that his policies will not concede in substance.
Last November, Rishi Sunak announced he would slice £10bn from departmental budgets in 2021, despite the prime minister ruling out cuts to public services. The chancellor hints that tax rises are needed now to bring down the deficit, a policy that owes more to austerity economics than Mr Johnson cares to admit. It is progressive to raise taxes on the wealthy or on excess business profits because it makes for a fairer society. But it is not progressive to do so to “balance the books”.
Post-Covid, the economy won’t expand without the stimulus of expanding demand. That requires public spending which can be targeted spatially to impact incomes and produce green jobs. Using state-backed debt, issued by a public infrastructure bank, to finance green private expenditure is an instrument with uncertain outcomes, not a policy. Mr Sunak resists spending to “level up”. He reasons that the economics of the madhouse could be smart politics. Pre-Covid, the public, wrongly, thought a decade of austerity had fixed the public finances. Mr Sunak reckons that voters could now be frightened again into believing a lie: that Britain has spent so much to combat a crisis it risks going bust. This could make “debt and deficit” once again the dividing line in British politics, contrasting Tory prudence with Labour profligacy.
As long as inflation remains low and stable, there is little reason to worry about a growing national debt. Mr Sunak’s attempt to present a brief oil price spurt as evidence of a looming threat from the rising cost of state debt is risible. The pandemic revealed that central banks can keep interest rates low by buying government bonds with money created from thin air. The government financing requirement last year was £485bn. Most of it was “paid” for by unconventional monetary policy. Next year will be no different. Rather than costing the Treasury money, this topsy-turvy world sees the government collecting the proceeds from state bonds its wholly-owned central bank has purchased. Since 2013, the state has received £110bn.
What continues is the levelling down of the state itself and the opening up of government to politically connected businesses on a scale unprecedented since universal suffrage began. Today’s economy masquerades as a free market. It is in fact a rent-extraction machine for insiders. The smokescreen was unexpectedly dispersed by the pandemic. That is why a majority of voters view a government procurement process which saw associates of Tory politicians handed billions in Covid contracts as corrupt.
Britain right now needs state support rather than belt-tightening. The risk is doing too little and leaving the country permanently poorer by letting workers needlessly go or allowing viable businesses to sink. The pandemic has exposed how unequal society had become. Taxation ought to address inequalities after Covid’s danger subsides. That timing does not suit Mr Sunak who wants to raise taxes now so he can cut them to boost Tory prospects ahead of the next election.
The pandemic slowdown was because governments took money away and governments ought to give it back. A future “green industrial revolution” will not arrive by tinkering with the cost of credit. It is the government, not the central bank, that can engender transformative, equitable growth. Laissez faire policies have been ditched by Tories such as Benjamin Disraeli and Joseph Chamberlain to retain power. But that was before such a powerful state had emerged and had itself become dominated by rentiers in both policymaking and delivery. Brexit has accelerated this process. Britain might still be radically transformed by Mr Johnson, but not in the way that voters were promised.