As the austerity establishment
sends us into another doom loop,
James Meadway says we
don’t have to buckle in for the ride

Last week’s autumn statement by the new chancellor, Jeremy Hunt, held out the prospect of the toughest half-decade for most of us in generations. If the forecasts pan out, and the government sticks to its own plans, we will face two years of recession, with rising unemployment, two years of wages and salaries being eroded by inflation, and then three years of sharp cuts to public spending – with additional tax rises. If you thought the decade before the pandemic was bad, the next five years are going to be worse. The pill has been (very slightly) sweetened with some higher taxes on energy company extreme profits, and some more spending for the NHS and schools over the next few years. Otherwise, nothing.

The best that can be said is that economic forecasts can be wrong, and these official predictions are better than the complete disaster that was talked up by government beforehand – quite deliberately, in order to soften the blow of eventual bad news. There is a general election due before the cuts and tax rises are due to really hit, with the possibility of a new government reversing them. And there are signs that more and more people are refusing to accept the misery handed down to them, with nurses, civil servants and firefighters set to join lorry drivers, postal workers, Amazon warehouse workers and rail workers in strike action over the next few months. We’ve already seen hundreds of thousands pledge to refuse to pay their energy bills over the summer, in the face of skyrocketing prices. With another major bill hike due in April – even with the extra support the government has been forced to make – there is the potential for further flashpoints and protests.

Nobody should feel they have to accept what is being offered. Austerity, as it was in the 2010s, is a political choice, not an economic necessity. Its defenders, like former George Osborne advisor Rupert Harrison, now brought back to advise Hunt, make their thinking clear. By cutting hard at public spending in the early 2010s, Harrison claims the government then found it easier to borrow for the huge costs of support during the pandemic. But this is nonsensical: it was the Bank of England printing money that paid for the pandemic. And by slashing away at public services, undermining healthcare, social care and public health provision in particular, austerity left us seriously unprepared when the pandemic struck – which is why it cost so much more. Cutting spending again will leave us in an even worse state for any future emergencies in a world that is now increasingly unstable.

What Harrison and the austerity apologists have done is trap the whole country in what the head of the Confederation of British Industry, Tony Danker, has called an economic “doom-loop”. This refers to the idea that we have been gripped by a collective madness, whereby economic underperformance and crisis leads to rising government debt and demands for austerity, which then undermine the economy, expose us to worse crisis, lead to rising government debt and so further demands for austerity.

There’s a reason why Britain has recovered so unevenly from the pandemic, and why it did so badly in the years beforehand. Every country is buffeted by huge global shocks, from Russia’s invasion of Ukraine to the after-effects of Covid to extreme weather damaging food supplies. It’s true that rising prices of imports like natural gas make all of us collectively poorer, and it’s true that interest rates are rising across the world. But Britain is worse affected by these things than other places. It’s not just that Brexit has had an effect – Britain was underperforming even before leaving the EU – it’s that austerity has left us permanently poorer than we would otherwise have been.

We are now on the second turn of the doom loop cycle, with the same motley crew – Harrison, Osborne himself, even (sadly) reputable organisations like the Institute for Fiscal Studies – urging government to give the wheel another crank. Never mind the 300,000 excess deaths attributed to 2010s austerity by the University of Glasgow, or the creaking of essential public services today, or the hard empirical evidence that austerity sucks the life out of a modern economy. The austerity establishment are back.

And yet we should detect some hesitancy here. The old guard certainly would like to push hard for cuts. But they have had to stay their hand. Claiming that spending cuts will only arrive after a general election you are widely expected to lose, preceded by a few years of rising spending, hardly speaks of confidence in your own plans. This isn’t 2010, when then-chancellor Osborne took the Labour Party’s own plans for cuts and threw in a load more, paving the way for the misery and failure of Britain’s own “lost decade”. The old guard know how unpopular austerity is – after all, Boris Johnson was elected in 2019 on a promise to end it. So they are being forced to tread carefully.

They want to create political difficulties for the Labour Party, of course. It is essential that Labour doesn’t walk into the obvious trap, repeating the mistake of the early 2010s of trying to fudge the question of cuts after the election. We need an alternative in government: tax the richest to fund our public services, invest across the country – not just in the Elizabeth Line in London – to create jobs and future-proof our economy against the shocks to come. None of us should settle for what the austerity establishment offer: the steady management of decline. We have two years to turn this around.

James Meadway is an economist and director of the Progressive Economy Forum, an independent thinktank (progressiveeconomyforum.com)

Photo: There is potential for further protests such as October’s Enough is Enough Day of Action in Manchester (Gary Roberts/Shutterstock)