The Observer view on Britain’s financial crisis being made in Russia – oh, come off it,
Britain is getting poorer. Independent forecasts from the Office for Budget Responsibility published last week predicted a 7% drop in living standards over the next two years – an average of £1,700 per household, wiping out eight years of growth. Real wages will not return to the levels at which they were before the 2008 financial crisis until 2027.
The chancellor, Jeremy Hunt, described this as a “recession made in Russia” in his autumn statement last Thursday. Of course Britain is affected by the same recessionary drivers as the rest of the world: the Covid pandemic, followed by the impact of Russia’s invasion of Ukraine on global energy and food prices. But it is dishonest to pretend that Britain’s grim growth outlook is purely a product of global shocks. Other countries have proved more resilient, even as Britain’s economy is showing its fragility. The reason for that is 12 years of Conservative economic policy and political instability: what the Institute for Fiscal Studies has described as a series of “economic own goals”.
Those began with George Osborne in 2010. As shadow chancellor, he had promised to rebalance the economy away from consumption driven by an inflated housing market towards investment and export-led growth, and away from growth driven by the financial sector in London and the south-east towards more evenly distributed regional economies. He used the financial crisis as an excuse to impose deep and unnecessary cuts to the public sector, underfunding the NHS, schools, adult education and public infrastructure, while eroding the welfare safety net for low-paid parents and people with disabilities. These cuts have made Britain a much harsher place to live, where pain-relieving operations routinely get cancelled during the winter and working parents are forced to rely on food banks to feed their children. But they have also harmed Britain’s long-term growth potential: more people out of the labour market because of long-term ill health, more people without the skills and qualifications they need to succeed economically and more businesses impeded by poor infrastructure outside the south-east.
Then came a Brexit driven not primarily by a democratic mandate – people did not vote for a Brexit that constituted a drastic cut in economic ties with our biggest trading partner – but by the takeover of the Conservative party by its Eurosceptic ideologues. They knew they could not win a mandate for Brexit by being honest about its costs so took advantage of a country suffering some of the biggest regional inequalities in Europe, worsened by Osborne’s spending cuts, to offer a populist solution: a fantasy Brexit that would lead to prosperity through cutting migration and freeing more public spending for the NHS. In short, a series of lies.
The Brexit delivered by Boris Johnson has corroded the country in two ways. It has depressed Britain’s growth potential for the medium term at a time when the country could scarcely afford it. Far from the rebalancing Osborne promised, it has impeded export-led growth. People will be poorer for decades to come as a result. It is a big part of the reason why the UK’s economy remains smaller than at the start of the pandemic, while the German, French, Italian, Canadian and American economies have all grown. All those who warned Britain could not afford to leave the single market and customs union have, sadly, been proved right. The areas of the country that can least afford it will be hardest hit by the Brexit penalty.
The Eurosceptic takeover of the party has also driven instability, delivering the worst prime ministers this country has seen. Nowhere was this more evident than in Liz Truss and Kwasi Kwarteng’s disastrous mini-budget. Just seven weeks of her premiership cost billions in higher interest rates and government borrowing costs.
This is the reality of the situation Britain finds itself in. It is not a “recession made in Russia”, but a global shock to which Britain is uniquely vulnerable as a result of 12 years of Conservative government. It is why Hunt has had to raise taxes across the board: because decisions taken by Tory prime ministers and chancellors have cost the economy big, so Britons are being forced to swallow not just the impact of record levels of inflation on their real pay, but higher tax bills.
It is true that Hunt loosened his self-imposed fiscal rules enough to allow him to reduce the scale of the immediate pain, so that working-age benefits will increase in line with inflation and the worst of spending cuts are pushed beyond the next election. But the pain felt by many will still be profound and it has been sharpened by Tory economic incompetence. People who had no give in their budgets a decade ago will be significantly poorer by the next general election as a result of years of cuts in support for working parents and people with disabilities. The NHS will continue to be underfunded and understaffed and so deliver substandard levels of care as a direct result of a lack of resources. The government will not adequately fund education catch-up for children from disadvantaged backgrounds most affected by the pandemic and they will feel the consequences for the rest of their lives. Britain is getting poorer and it is the Conservative party, not Vladimir Putin, that is largely to blame.
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