According to the Chancellor and the OBR, the UK is facing an economic contraction of 11.3 per cent this year, the largest fall in output for 300 years – representing an ‘economic emergency’. The OBR is forecasting a surge in unemployment to 7.5 per cent in the second quarter of next year when Covid job support measures are withdrawn, equivalent to 2.6m people out of work. This will compare with 3.8 per cent unemployment before the start of the pandemic and a current rate of 4.8 per cent.
Sunak has announced £2.9bn of spending over three years for a “Restart” programme to help the unemployed – we have to assume this is in addition to the funding already announced for the kickstart measures aimed at young people and the £1.4bn available for Jobcentres to be able to ‘coach’ the unemployed back into the labour market), but these measures are designed for supporting the long term jobless (not that they are anywhere near sufficient to help them). Government is relying on a high ‘bounce back’ next year ( and of course a successful vaccination programme) to reduce unemployment generally. But the fallout from the crisis will continue to be felt until the middle of the decade – according to the Chancellor himself, the economy, will likely be 3 per cent smaller in 2025 than predicted in March.
Labour’s response has been hesitant. It’s right to criticise the papery of Sunak’s employment recovery programme – Labour has already set out its own proposals to create 400 000 new green jobs. It’s correct to attack the Tories over the threat of a public sector pay freeze – NHS workers and those earning under £24 000 a year will be exempt from this – and of course, to condemn the cuts to the Foreign Aid budget – David Cameron and many other Tories are against these.
But Labour is hamstrung by lack of clarity over its own plans for the economy. The Tories have changed the nature of the debate. In contrast to George Osborne who on becoming chancellor at the tail end of the financial crisis, thought it essential to reduce the deficit as quickly as possible, Sunak has “normalised” extra borrowing, now due to hit a peacetime record of £394bn this year.
In danger of being outflanked by the Tories and anxious to take on the Starmer leadership, Labour activists are right to defend the Corbyn manifesto, but its pledges for the economy require extensive revision. The manifesto proposed increasing current expenditure by about £50/60 billion, welcome and appropriate at the time, but the Johnson government has spent an extra £280bn since March on its response to Covid- and knows it will have to spend more to avoid a mega recession.
Labour also committed to establishing a National Investment Bank spending £400 billion over the lifetime of the Parliament, but even the Tories are talking about a ‘national infrastructure strategy’ and an immediate £100 billion on capital expenditure – though this will be dependent on raising private sector funds and private sector growth – regardless of climate change.
Of course, this doesn’t mean that it will always be like this or that these plans will remain intact. Rather than relying on their own magic money tree, the Tories are still committed to ‘balancing the books’, even if the policies they’ll use to do this (pay freeze and aid cuts excepted) have been put on ice till the spring. But Labour is also reluctant to show its hand and trapped by self-imposed ‘fiscal rules’ about financial expediency – ignoring the fact that if, as is the case now, huge chunks of the debt are bought up by the ‘independent’ Bank of England through a new type of Quantitative Easing , ‘repayment’ takes on a completely different significance.
Unless Labour breaks with what is essentially a Neo-liberal approach that sees management of the economy akin to management of a household finances, it is unlikely to be able to promote the longer term, alternative vision needed to seriously challenge the Tories. It won’t be able to properly develop the role of the public sector in ensuring economic prosperity and redistribution of income and wealth – let alone fund a proper Green New Deal.
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And then there’s Brexit!