Learning no lessons, repeating the same failure over and over yet expecting a miraculously better result, the Bank of England might just as well be advocating a return to the gold standard. Raising interest rates as the UK is facing its longest recession since records began is no way to repair the damage done by Trussonomics and the longer effect of George Osborne’s crippling austerity, and it is no way to breathe life into a stagflated economy.
The increase of 0.75 percentage points – from 2.25% to 3% – is the steepest rise since 1989. Millions of mortgage- and rent-payers alike will be hit hard, on top of falling real wages and rising costs of everything. An Ipsos poll for Sky News finds that more than a quarter of adults have started using credit cards to buy food – and a fifth have borrowed money to adjust to rising prices this year. Inflation has hit a 40-year high.
In two weeks’ time, Rishi Sunak and his chancellor, Jeremy Hunt, will be stripping money and life out of the economy with cuts to spending and tax rises. This rate rise and the coming extra austerity are choices made by those who have mismanaged the economy to leave us with a country that is poorer and with bleaker prospects than when these state-shrinkers took over in 2010. They will claim it’s all been caused by Covid and war in Ukraine, with no explanation as to why Britain is the only G7 country with a smaller economy than at the start of 2020. They have cut living standards for the “have nots”, while rises in share and property values have inflated the assets of the “haves”. Top pay has soared, most wages have stagnated.
The UN poverty envoy, Olivier de Schutter, warns the government not to squeeze the poor any harder. But even if benefits are uprated with inflation, the cuts since 2010 leave 22% of people in poverty and the UK on course to be the most unequal country in Europe, bar Bulgaria.
Now everything is slowing down – such as construction and services. It’s symbolic that the government has refused to save the Britishvolt electric car battery factory in Blyth, Northumberland, threatening the automotive sector’s future. The hardly leftist CBI warns of a doom loop of cuts in services and tax rises.
A chronicle of the state of public services and their capital dilapidations would make the grimmest reading. Don’t be deceived if the NHS is vaunted as “protected” while other departments take even harder hits: its current budget plus “efficiency savings” don’t cover inflation and pay, so its backlog will not fall. The CEO of NHS England, Amanda Pritchard, says it’s in a worse state than in the early days of Covid.
Real-terms school spending per pupil and teachers’ pay will remain well below 2010 levels by the next election. Social care has “never been so bad” says Sarah McClinton, the president of the Association of Directors of Adult Social Services, with 160,000 staff vacancies to fill, because people are unwilling to work so hard for so little. The government and Bank of England will welcome predictions of unemployment rising, putting an end to their phantom “wage-price-spiral”, and will be hoping that people will be driven into jobs on pay that’s below subsistence levels. In dirty Britain, water and air pollution targets are missed, says the Office for Environmental Protection.
It’s as if John Maynard Keynes had never proved the needless damage done by cutting during a recession, causing a long depression. Expect more mendacious language along the lines of “we have maxed out our credit card”. Will people be deceived again into believing national debt is the same as a household’s? Keynes called his policy “the paradox of thrift”, as it goes against every gut instinct to spend your way out of a recession.
It is difficult for Labour to expound a policy that defies economy-throttling austerity, but the shadow chancellor, Rachel Reeves, made a good attempt on Thursday when she promised that her party’s “real plan for growth means we can thrive – not just lurch from Tory crisis to crisis”. Labour’s green prosperity plan for investment in renewables, insulation – and, yes, battery factories – is the Keynesian response.
Let’s hope that Dr Doom exaggerates, but Nouriel Roubini’s book Megathreats, published this week, warns of a new global Great Depression worse than the last. He earned his nickname as the only economist to predict the great bank crash of 2008. Listen to him, and you would want to hide under the duvet, as he seems to suggest that almost nothing can avert it, with omnicatastrophes coming up thick and fast. Hope and optimism are scarce right now, but Labour will have to keep trumpeting them out with zeal.
Polly Toynbee is a Guardian columnist
