Rishi Sunak has a two-stage economic strategy for Conservative recovery in time for the next election. First, bring down inflation. Second, hope that growth returns fast enough to revive public confidence. The problem is that the measures currently preferred for completing stage one make arrival at stage two less likely.
The condition of public services is a case in point. Earlier this week, Jeremy Hunt said the Treasury would not raise new revenue to fund higher wages in the public sector. Current budgets envisage 3.5% increases, while the independent pay review body recommends a range of 5% to 6.5% – still a cut in real terms. The chancellor rules out borrowing or raising taxes to finance even modest pay rises, preferring departmental cuts, which would further degrade frontline services.
The threshold of tolerance among public sector workers, after years of austerity, has already been crossed. That frustration is expressed in a five-day strike by junior doctors in England beginning on Thursday – the longest such action in the history of the health service. The chancellor argues that wage increases feed inflation, spurring demand for even higher salaries. But inflation has multiple causes: labour shortages as a result of Covid, expensive food and fuel imports caused by the Ukraine war and Brexit supply-chain disruption, a factor that the government is less keen to highlight.
Instead, the Treasury has fixated on breaking a wage-price spiral, despite the evidence of price-gouging by companies and even if it means teachers and nurses are unable to feed their families. Meanwhile, on the second front against inflation, homeowners are being battered by rising interest rates. The Bank of England estimates that by 2026 nearly a million households will have to find an extra £500 a month to cover their mortgages, and that is before unsecured debts are taken into account. An income shock of that scale, when growth is already stagnant, is a recipe for recession.
Mr Hunt cannot dictate monetary policy to the Bank, but he has made an active choice to use suffocation of the public sector as an instrument of fiscal discipline. He insists there are no alternatives, by which he means that the Conservative party will not tolerate tax rises or any suggestion that their own fiscal priorities – channelling favours to their richest supporters – are the wrong ones.
Meanwhile, Labour feels constrained by a political imperative to signal frugality to swing voters who might suspect the party of being profligate by nature. Such caution is vindicated by double-digit poll leads, but that advantage also affords flexibility. Rachel Reeves, the shadow chancellor, has developed an alternative economic argument, based on growth through investment in new, green industries, but the ambition has been undercut by a decision to defer the promised spending.
Sir Keir Starmer’s strategy has left the Tories floundering, and for that he deserves credit. But if he wants a mandate to clear up the mess the Conservatives are currently making, he must prepare the ground now. That is a test of storytelling as much as policy. It means countering disingenuous Tory parables of prudence used to justify ideological vandalism of state services. It means narrating an alternative story that casts a properly resourced public realm as the foundation of a happier society and a productive economy. Voters can see that the Tories have trapped Britain in an economic doom loop. There is an audience waiting for Labour to describe the way out.
