UK: Budget backlash puts Truss on the brink
16 October 2022
A magazine cover lampoons the leadership
of Liz Truss.
When Liz Truss was running for the leadership of the Conservative Party, she consciously drew parallels between herself and Margaret Thatcher even to the extent of recreating some well-known Thatcher photo ops such as riding on a tank or standing in Moscow’s Red Square. The imagery was matched by rhetoric with Truss presenting herself as the leader to challenge the prevailing economic orthodoxy and vested interests that were stifling Britain’s potential for rapid growth. This nostalgia and delusion were enough to win the Conservative party members over and propel her to the post of prime minister but it did not survive long when faced with contemporary material reality.
The reaction to her government’s mini budget, the heart of which was an expansion of borrowing to fund tax cuts for corporations and wealthy individuals, was swift and brutal. The value of the pound plummeted while the cost of financing UK government debt spiked upwards. Lenders withdrew mortgage products in the anticipation of a rise in interest rates. A threat to the viability of UK based pension funds (which are heavily invested in government bonds) was only averted by the Bank of England committing to buy up to £65bn worth of Gilts. This can be added to £72 billion extra borrowing in the budget and also the $170bn cost of the energy price cap announced a number of weeks earlier. The verdict from the financial markets was that borrowing on such a scale was not sustainable.
In the face of this onslaught, and with the Tories slumping in the polls, Truss has gone into full-scale retreat. Unlike her heroine Margaret Thatcher she certainly is for turning. The first U-turn was the abandonment of plans to abolish the top rate of tax; second was the decision to now go ahead with the rise in corporation tax announced by the Boris Johnson government: and third was the dismissal of the chancellor who she had backed just the day before.
This debacle has severely weakened Truss with speculation that she herself will soon be on the way out. However, is not just the weakness of the Prime Minister that this episode has revealed but also the weakness of the British economy. The UK is not in the same position as the US; the pound is not a reserve currency like the dollar and unlike the US the scope for the UK to expand its public debt has limits. This is why the Truss government’s attempt at what has been described as Reaganomics (of growing public debt to cut taxes) has failed.
Brexit budget
It should be noted that the mini-budget initially received a positive response from the media with most of the right-wing press hailing it as the first true Conservative budget in twelve years. However, it would be more accurate to describe it as the first Brexit budget. It chimed with the themes of Brexit – of freeing the British economy from the legacy of EU regulation and giving capital free reign. While the huge tax cuts got most attention the elements that dealt with deregulation (ranging from the environment to employment rights) are just as significant. It was notable that the budget statement also contained proposals to make it even more difficult for trade unions to take industrial action. The mini budget was Brexit is its fullest form, and when people have to face the consequences of Brexit it proves to be very unpopular. Despite the reversal of much of the mini-budget the dangers for the working class still remain. The deregulation agenda continues to move ahead as does repressive measures such as the new anti-protest and anti-trade union laws. The new chancellor has already indicated that there will be a new round of austerity with increasing taxes and public spending cuts. This is now a priority in order to win back the trust of the financial markets.
Opposition
The crisis besetting the Truss government has been largely self-inflicted. It is also notable that resistance to its plans has come – not from the official political opposition – but from within the Conservative Party, from representatives of big capital and from state officials. Public discourse on the mini-budget and broader economic strategy has been strictly within ruling class circles and capitalist parameters. The working-class perspective has been completely absent.
Given the direction of the Labour party under the leadership of Keir Starmer this is hardly surprising. Since his election over two years ago, and despite the serious crises (the pandemic and the surge in inflation) that have erupted during that short period, the Labour Party has failed to challenge the government or present an alternative. What criticism has been levelled at the government has been around questions of competence and integrity rather than anything substantive. This reflects the reality that, in terms of programme, Labour and the Conservatives are as one. Under Starmer the modest social democratic reforms proposed by Corbyn and McDonnell have been abandoned. However, this is just one element of a rightwards shift that has seen the party carry out a ruthless purge of its own membership (which has targeted not only socialists but also those on the soft left and those associated with the trade union movement) and embrace nationalistic reaction. This was on full view at its recent annual conference where the podium was decked out in Union Jacks and the proceedings got underway with a rendition of “God Save the King”!
In his conference speech Starmer offered the party as a reliable custodian of British capitalism committing a future Labour government to “reduce debt as a share of our economy” and “make sure public spending targets the national interest”. The clear implication here is that such a government would be prepared to preside over yet another round of austerity. He also hinted at some form of social partnership “between government, business and trade unions” as a mechanism by which this could be carried out. Although underprepared this was probably the most significant part of his speech as it poses the greatest danger to the labour movement. We need only look to the situation in Ireland where over thirty years of social partnership has put trade unions in the role of policing industrial relations and imposing government policies.
The main motivation behind this rightwards shift in Labour, but which is barely mentioned by the party, is Brexit. In the wake of the referendum of 2016, and even more so after its defeat in the general election of 2019, the party has been leaning into Brexit. Under Corbyn this meant holding out the possibility of a progressive Brexit. Under Starmer this delusion has been abandoned and the party has gone full on Brexit - embracing all its backward economic and political ideas. The Labour slogan now is “Make Brexit Work”, a mirror of Boris Johnson’s general election slogan of “Get Brexit Done”. Of course, it is just as vacuous.
The programme set out by the Truss government is the outworking of Brexit for there is no economic strategy for a UK outside of the EU other than deregulation and a race to the bottom. This is necessitated by the decline in the UK’s trading position and loss of access to labour that arises from Brexit. Any government, Conservative or Labour, that sticks with Brexit will be forced down this path. Of course, there are powerful counters to this in the form of big capital and state officialdom who favour a closer relationship with the EU which would involve some level of participation in the single market.
These contradictions are particularly acute for the Conservatives whose support is closely aligned with the pro-Brexit bloc. The political imperative for them is towards confrontation with the EU and the promotion of protectionist and anti-immigrant policies that appeal to its bigoted petty bourgeois base. This is the class background of much of the rank-and-file membership of the Conservative pParty that elected Liz Truss as leader and propelled her to the post of prime minister.
The Labour party does not face the same problem as its membership and voters were, and continue to be, overwhelmingly anti-Brexit. But it has embraced Brexit and all the bigotry associated with it in the belief that its route to a general election victory lies in winning over pro-Brexit supporters in the former “red wall” constituencies in the north and Midlands of England. However, the assumptions for this are rather tenuous as most of the people in these regions who voted Conservative in 2019 are unlikely to have switched directly from Labour and would still be unlikely to support the party no matter how much it wraps itself in the union flag and nods towards bigoted notions. At the moment Labour is riding high in the polls but this is more the result of the implosion of the Tories rather than an endorsement of the party. Indeed, the high number of don’t knows recorded in recent polling is an indication that Labour is failing to win people over. Also, the performance of Labour in actual elections, both local and regional, under the leadership of Keir Starmer has been underwhelming. There is no guarantee that Labour will win a majority at the next general election and that if it did manage to win by default that a Labour government would differ significantly from the Conservative ones that went before it. Its current political cowardice in confronting the critical issue of Brexit suggests it would not.
Economic decay
While much the coverage of the UK’s economic woes has concentrated on recent upheaval around the mini budget these was some time in the making. They date back over forty years to what became known as the Thatcher revolution when large sectors of the British economy were de-industrialised, public assets privatised, private debt expanded and the power of organised labour significantly weakened. The process of the financialisaton of the economy has been ongoing with periodic collapses and bailouts. However, this economic period came to an end in the financial crash of 2008. Since then, the economy (and not just that of the UK) has been kept alive on a drip of cheap money and ultra-low interest rates. Surging inflation and rising interest rates, which are a direct consequence of such polices, are now bringing severe crisis to those economies most geared around debt fuelled consumption, the survival of zombie companies (those kept alive by cheap money) and inflated asset prices.
The programme set out by the Truss government won’t resolve this crisis. There is already evidence that it is serving to deepen it. However, the idea promoted by the New Labour ideologues around Keir Starmer that the clock can be set back to the 1990’s – that the financial sector can be given free reign and that the UK can re-enter a long period of economic growth - is equally delusional. That has run its course and won’t be coming back.
Class struggle
The UK (in common with other countries around the world) is experiencing serious instability as the old economic and political order decays. In the case of Britain this process has been accelerated by Brexit, which itself was a product of that long term decay. What the current upheaval within ruling circles reveals is a struggle within the capitalist class over how to respond and how to shape the future.
But alongside this there is also a struggle between classes. This has intensified over the recent period with a significant upturn in the level of industrial action by workers. While this shouldn’t be exaggerated, as it is rising from a historically low baseline and trade unions are still in a relatively weak position, it does point to a rising level of class struggle. Much of this is related to surging inflation and the economic slowdown which compels employers to up the level of exploitation but also forces workers to defend themselves. The current high levels of employment and the existence of labour shortages in many sectors has also created more favourable conditions for workers.
However, these conditions won’t last for long. The struggle going on within the capitalist class is over how to change this. One faction (most closely associated with Central Banks) argues for some form of managed recession in order to reduce inflation and expert greater control over labour, while another (most invested in the Brexit project) argue for deregulation and the immiseration of large sections of the population.
Given the rapid retreat of
the Truss government from its budget, in the face of hostility from the
financial markets, its own MPs and state officials, it is clear which faction
is the stronger and whose position is likely to prevail. The events
of the last number of weeks can be viewed as the dominant sectors of British
capital reasserting control. The Brexit project may not be over but
the idea of the UK being transformed into a Singapore on the Thames has
been well and truly buried.
While there may be disagreements
within the ruling class, all the various factions are united in their determination
not to concede anything to the working class. This has been
the case since the financial crash in 2008. Calls for the adoption
of Keynesian type policies by economists and by politicians such as Bernie
Sanders and Jeremy Corbyn have been rejected. Though ridiculed as
“looney leftism” or the equivalent of Soviet Communism the programme brought
forward by Labour under Corbyn was probably the most comprehensive plan
to stabilise the British economy. Despite this, not one section of
capital would endorse it.
If the era of financialisaton is passing then the era of social democratic reforms is long past. Whatever follows, this will not be a re-run of the post WWII period that saw the implementation of reforms (public housing, the welfare state, health service etc) that were favourable to the working class. Today there is no common ground between workers and supposedly “progressive” sections of the capitalist class. Workers need their own independent organisations and their own programme. The struggle for that will involve not only a struggle against employers and the political parties of the right but also within the labour movement itself. It’s easy to be against the Tories, particularly given their current level of unpopularity, but workers also have to be prepared to oppose a future Labour government led by Starmer, whose programme will be indistinguishable from that of the Conservatives, and those within the trade unions who would join some form of social partnership to impose that programme.