‘The lady doth protest too much, methinks.” This quotation from Hamlet keeps coming back to me every time Chancellor Rachel Reeves blames the last government for the economic inheritance and austerity measures she claims have been thrust upon her. The truth is that she often made it plain before the election that she expected a terrible inheritance; if there were some secrets she did not know about – well, that should not have surprised a politician.
They have certainly been thrust upon the rest of us, not least the many pensioners who, while not qualifying for the revised, means-tested winter fuel payment, will struggle with heating bills that are much higher than when Gordon Brown, as chancellor, introduced the allowance all those years ago.
I know of one loyal Labour supporter, living in Keir Starmer’s constituency, who has resigned from the party over this issue. This at a time when Brown himself is very much occupied with urging alleviation of the damage caused by the spread of poverty during the Conservative years of austerity. In common with most of us who supported a change of government, Brown wanted the two-child benefits cap lifted. And at a time when the costs of social care are a crying scandal, it beggars belief that the government has dismissed Andrew Dilnot’s not-particularly-costly proposal for a limit on the contributions old people have to make for their care.
There have been disturbing reports that Starmer and Reeves are still, even now, more concerned with pleasing so-called “red wall” voters than the electorate at large. Does this account for their continued opposition to rejoining the single market? Are they still frightened of the leavers – who, recent surveys suggest, are a diminishing band anyway? As I wrote last time, can somebody please tell the Labour party that they won the election?
Obviously, Starmer has been preoccupied by coping with the riots and the need to restore social order. It was therefore unfortunate for the chancellor that she found herself on a recent visit to New York and Toronto trying to sing the praises of the UK as a place to invest when the news was dominated by rioting.
To some extent, the government is courting investors from America and elsewhere because of the impact Brexit has had on EU investment in the UK. Ironically, though, in addition to the mean-minded cuts to social programmes, we also find that reductions are being made in the kind of domestic investment in capital projects that is supposed to foster the government’s growth plans.
Which brings us back to the chancellor’s surprising decision to adhere to the tight fiscal rules she inherited from the Tories. One suspects that a factor here may be her horror of upsetting the financial markets after the wild, short-lived Truss-Kwarteng growth experiment.
But this would be an overreaction. Jagjit Chavda, the director of the National Institute of Economic and Social Research, points out that the “dogma” of the present rules prevents the Treasury from sanctioning long-term public investment in education, health, transport and energy, which add to growth in the long term. (By the way, it is sometimes argued that servicing the financial cost is a burden on future generations. In fact, future generations feel the benefit of such investment.)
This obsession with fiscal rules suggests to me that Labour, and students of economics generally, could learn a lot from a fascinating new book, Inside Thatcher’s Monetarism Experiment by Tim Lankester. Monetarism was a dogma that led to all manner of damage during the 1980s, some of the consequences of which are still with us.
Lankester argues that in the elusive aim of counteracting inflation by attempting to control the money supply, Margaret Thatcher’s government overdid it, causing unnecessary closures of firms and devastating whole towns and industrial areas. Evidence of such damage remains to this day. Yet, as he points out: “Many years later, the great guru himself, Milton Friedman [the leading advocate of monetarism] broke cover and admitted: ‘The use of money as a target has not been a success. I am not sure I would as of today push it as hard as I once did.’”
There is a danger that the worshipping of fiscal rules, by restricting the investment the government seeks to encourage, is, as Chavda fears, going to have a perverse impact on the growth objective by which Reeves sets so much store.
Lankester writes with feeling. He was private secretary to Thatcher in 1979-81, the crucial early years of what became a false prospectus. As a loyal civil servant, he tried to put the best face on a policy he did not believe in. His book expresses his regret. I wonder if the exponents of the current dogmatic obsession with fiscal rules will have similar regrets.
