Rishi Sunak is the Conservatives’ most modern politician in terms of style. But he is traditionalist in substance. In his conference speech, the chancellor extolled the virtues of good housekeeping to sell the idea that he would balance the nation’s books. The household analogy is a powerful one in politics because it seems to correspond to everyday observations about thrift. But it makes no sense to compare personal experience with the economics of a nation. The late Roy Jenkins, two decades after serving as a Labour chancellor, rightly said Margaret Thatcher was trading in lousy economics when she sold herself as a prudent housewife able to save Britain from Labour overspending.
“I think it is nonsense,” he told the BBC, “because there is an essential difference between the position of a family budget and the national budget, and that is that on the whole a family cannot increase its income by increasing its spending, whereas a nation, a government, by increasing its spending [can] substantially increase the total of the national income”. It speaks volumes about how much of the debate around political economy has been conceded to the right that the current Labour shadow chancellor could not match the unapologetic Keynesianism of Lord Jenkins.
What the pandemic has shown is that there seems no limit to the amount of money a government can create. There are obviously limits to how much a government can buy. If the state spends too much money it will drive up prices. The existence of large-scale unemployment and low inflation is evidence that the UK government is not spending enough. Even the International Monetary Fund says now is the time for state spending to “help revive economic activity from the sharpest and deepest global economic collapse in history”.
The point of politicians, Mr Sunak claimed, was to say the country cannot “borrow our way out of any hole”. But that is a rightwing view out of step with the reality of the Covid recession. With high-street names letting thousands of workers go, benefits being scaled back and homelessness rising, the chancellor is swimming against the tide. Mr Sunak’s address was about politics, not economics. He suggested that government debt, which passed £2tn for the first time in August, was vulnerable to increases in borrowing costs. Yet central bankers can not only control short-term interest rates but also substantially influence interest rates on long-term government securities.
The chancellor’s speech signals that he wants to debate public spending cuts, not increases. Mr Sunak is no fool. He knows a boost is needed. Like most Tories he wants to stimulate the Covid economy with tax cuts rather than public spending. Fiscal conservatives worry not about the debt but about the public’s desire for better social care, education and public transport. They fear that once voters get a taste for decent public services, they won’t lose it. Conservative MPs have never worried about the deficit when it came to slashing levies on companies or committing to buying a new generation of nuclear warheads. But they claim that out-of-control social security spending would bankrupt the economy. Arbitrary government deficit and debt ratios are inappropriate targets of economic policy. Sustainable prosperity would be a better focus in a climate emergency. We should aim to do much better in the future than we have ever done in the past.
