There was a time when the Institute of Directors was a hotbed of Thatcherism. Its members were gung-ho for the free market, tax cuts, privatisation and economic liberalism in its purest form. But that was in the 1980s and early 1990s and it is a different story now. Earlier this week, the IoD called on the chancellor, Jeremy Hunt, to be more than simply a bean counter in next week’s budget and urged the government to come up with its own version of Joe Biden’s Inflation Reduction Act.
This is some change of heart. The IRA is a $370bn (£312bn) package of protectionism, state aid and subsidies designed to galvanise American business in the fight against climate change. Where once the IRA would once have been everything it loathed, here was the IoD warning that “short-term budgetary concerns” should not be allowed to trump the “strategic imperative of establishing market leadership positions in green business”.
The IoD – and other business groups such as the Confederation of British Industry – are likely to be disappointed. Hunt will come up with some modest measures to stimulate investment and boost employment next week but the budget is not going to be the gamechanger business is demanding.
The chancellor’s priorities are to cut the UK’s budget deficit, to take no risks with inflation and to keep the financial markets sweet. After the turmoil caused by Liz Truss’s whirlwind premiership last autumn, the message will be that grownups are back in charge. Financial orthodoxy has returned. The Treasury is back in control of the public finances. The Bank of England is taking action to bring down inflation.
Voters, Hunt and Rishi Sunak believe, want a government that is prudent with the nation’s finances rather than one committed to wild experimentation, and that is what they plan to deliver. Up to a point, the budget will be a throwback to former chancellor George Osborne’s austerity shock treatment in 2010.
But only up to a point. Osborne was broadly swimming with the tide of business and public opinion when he insisted there was no alternative to a period of financial austerity. In the run-up to the 2010 election – and in the period immediately after it – the Conservatives convinced the public that Labour was to blame for the global financial crisis. This was nonsense, but the ploy worked.
Much has happened since 2010. The economy has performed badly and been subject to two further shocks: Brexit in 2016 and the Covid-19 pandemic in 2020. The vote to leave the EU was highest in the least prosperous parts of Britain and a sign of deep discontent. Whatever else it was, Brexit was certainly not a vote for the government to intervene less in the running of the economy. Had the referendum gone the other way the problems of the left-behind parts of Britain would still have needed addressing (and still do).
Covid-19 saw the state intervene in the economy to an extent never before seen in peacetime. An avowedly rightwing government paid the wages of millions of workers, showered business with grants, tax breaks and soft loans, and took over the running of the railways. Voters quickly became accustomed to state intervention on a massive scale.
Part of that intervention involved slashing interest rates and pumping up asset prices through the Bank of England’s money creation programme known as quantitative easing. Already comfortably-off homeowners were the main beneficiaries.
So, to sum up, Britain has had a decade of weak growth. Millions of people expressed their unhappiness with the status quo in 2016. The pandemic required more state involvement in the running of the economy, which had positive spin-offs in terms of vaccine development, but also widened the gap between rich and poor.
Unsurprisingly, the public’s views on economic issues have moved leftwards over the past 13 years, as demonstrated by support for this winter’s strikes, for state ownership of the public utilities and for higher government spending to be paid for by higher taxation. Hunt’s framing of the budget relies on a highly questionable assumption: that deep down Britain is a conservative country that won’t accept change.
As one official who worked in Downing Street when Labour was in power told me this week, the shift in public attitudes means Labour leader Keir Starmer and shadow chancellor Rachel Reeves have an easier job convincing voters of the need for economic change than was the case for Tony Blair and Gordon Brown when they were in opposition in the run-up to the 1997 election.
Let’s not exaggerate. Britain may have moved leftwards on the economy, but not that far leftwards. The public is not yet ready for modern monetary theory – the idea that there are no real budgetary constraints on a government that prints its own currency.
But would voters be terrified by a government that said the lesson from the past 15 years was that Britain needed an industrial strategy designed to level up and to hit net-zero targets? Would they reject out of hand the idea that greening the economy will require billions of pounds of investment from the public and private sectors? Does nurturing the growth sectors of the future really sound scarily radical given what Biden is doing on the other side of the Atlantic?
It seems unlikely. Despite what happened under Truss, voters and business would be up for what Labour is proposing with its green recovery plan. That’s good, because a green recovery plan – rather than the much more timid affair likely to be served up next week – is precisely what the country needs.
Larry Elliott is the Guardian’s economics editor
