Covid

The Guardian view on madhouse economics: Tories bet it makes political sense | Budget 2021


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The core of the government’s economic strategy is to equate the rest of Britain with London and the south-east of England in terms of wealth and opportunities. The public remains concerned about regional and income disparities. “Leveling up” – as some people really believe it – is a facade. Boris Johnson’s slogan calls for a shift in the level of public spending that his policies will not allow for in substance.

Last November, Rishi Sunak announced that he would cut £ 10 billion from departmental budgets in 2021, despite the Prime Minister ruling out cuts in public services. The Chancellor pointed out that tax hikes are now needed to reduce the deficit, a policy that owes more to the austerity economy than Mr Johnson would like to admit. Taxing the rich or taxing excess corporate profits is progressive because it leads to a fairer society. However, doing this to “balance the books” is not progressive.

After Covid, the economy will not expand without the incentive of growing demand. This requires public spending that can be used in a spatially targeted manner to influence incomes and create green jobs. Using government debt issued by a public infrastructure bank to fund green private spending is an uncertain outcome tool, not a policy. Mr. Sunak is resisting spending to “move up”. He argues that the madhouse’s economy could be a wise policy. Before Covid, the public mistakenly believed that a decade of austerity had fixed public finances. Mr Sunak said voters may now be afraid again of believing a lie: Britain has spent so much to fight a crisis that it is in danger of going broke. This could make “debt and deficit” the dividing line in British politics again, contrasting Tory prudence with Labor waste.

As long as inflation stays low and stable, there is little reason to worry about rising public debt. Mr Sunak’s attempt to portray a brief surge in oil prices as evidence of an impending threat from rising public debt costs is risky. The pandemic has shown that central banks can keep interest rates low by buying government bonds with money made out of nothing. The government’s funding needs last year were £ 485 billion. Most of it was “paid for” through unconventional monetary policy. It won’t be any different next year. In this perverse world, instead of costing the Treasury’s money, the government collects the proceeds from government bonds that its wholly owned central bank has bought. As of 2013, the state has received £ 110 billion.

What continues is the flattening of the state itself and the opening up of the government to politically related corporations to an extent unprecedented since universal suffrage began. Today’s economy disguises itself as a free market. It’s a pension extraction machine for insiders indeed. The smoke screen was unexpectedly dispelled by the pandemic. For this reason, a majority of voters see a government procurement process as corrupt, in which Tory politicians’ employees have handed over billions in Covid contracts.

Britain is currently in need of government support rather than tightening the belt. The risk is doing too little and making the country permanently poorer by leaving workers unnecessarily or viable businesses perishing. The pandemic has shown how unequal society has become. Taxation should eliminate inequalities after the threat of Covid wears off. This timing does not suit Mr Sunak, who now wants to raise taxes so he can lower them to improve Tory’s prospects before the next election.

The slowdown in the pandemic was due to governments taking money away and asking it to return. A future “green industrial revolution” will not be achieved by tinkering with the cost of borrowing. It is the government, not the central bank, that can bring about transformative, equitable growth. The laissez faire policy was abandoned by Tories like Benjamin Disraeli and Joseph Chamberlain in order to keep power. But that was before such a powerful state emerged and was even dominated by renters in both policy making and delivery. Brexit accelerated this process. Britain could still be radically changed by Mr Johnson, but not in the way that voters were promised.

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Robert Dunfee