Will it end with a bang or a whimper? Will Labour persist with their socialist policies despite their ruinous impact becoming all the more evident until a big crash in the 2029 election wipes out their majority? Or will economic reality force a change of course before then?
Perhaps a bit of both. If we want a guide to the future, we should study what happened in 1976. That was when the previous Labour government ran out of money and was made to change tack. The subsequent change of government in 1979 is rightly regarded as the key turning point. But Margaret Thatcher herself told the Conservative Party Conference in 1977 that after Labour had ‘overspent, overtaxed, interfered, nationalised, debased our currency and all but bankrupted Britain’, the ‘policies have been reversed 180 degrees – by order of the International Monetary Fund’.
She added:
The prescription the IMF forced his government to swallow is the prescription we have long been advocating. A good, sound, sensible, Conservative prescription. So my message to Moses is this: keep taking the tablets. And if Labour wants an Election slogan, I suggest – it’s just a thought but one likes to be helpful – ‘You know IMF Government works’.
(To understand Thatcher’s jokes, it is necessary to realise that the Labour Prime Minister, Jim Callaghan, had been mocked for promising to lead us into the ‘promised land’ and that a previous Labour election slogan had been ‘You know Labour Government works’.)
Some 50 years on, aren’t the public finances once again pretty much at the limit? The Chancellor of the Exchequer can ‘rewrite the fiscal rules’ as much as she likes, but that won’t fool the markets – if she wants them to fund yet more profligacy. It’s like having a conversation with your bank manager and demanding a higher overdraft due to your passionate opposition to austerity. After a certain point, your plea will be rejected, and her cold, hard rendezvous with reality will have to be faced.
What about tax rises then? Last month, the Office for Budget Responsibility acknowledged that tax revenues were lower than they expected. This is due to higher taxes having an impact on morale. The socialists conclude that higher taxes are the answer to fill the gap – ‘the beatings will continue until morale improves’. Let’s see how that works.
Sooner or later, that leaves us with lowering public spending as the necessary step to take. A huge part of that is welfare spending. Simply doing nothing means the cost will massively escalate. On Monday night, the Prime Minister warned Labour MPs that the cost of disability and sickness benefits is set to soar to £70 billion a year by 2030.
There have been some murmurs of dissent. The WhatsApp groups will be buzzing away – with inevitably some of the content reaching the public domain. For years, these Labour MPs have been declaring that ‘austerity‘ was a choice and one they emphatically rejected. On countless doorsteps and street stalls across the land, they would declare that the Tories were doing this out of pure spite – to keep the rich on top, they wished to grind down the poor.
As Daniel Hannan put it in the Daily Mail:
Labour has had to do a lot of growing up over the past eight months. The party had genuinely convinced itself that governing would be easy. After all, if the Evil Tories had managed to run the country for 14 years, how hard could it be? Replacing the baddies with the goodies would, in the minds of many Labour MPs, automatically make things better. Instead, the economy is falling apart with alarming speed. Foreign companies are disinvesting and taxpayers are going into exile. Britain’s 30-year record of low unemployment is coming to an end.
With welfare spending at over £300bn a year in the UK, the challenge for politicians is to find substantial savings that are politically acceptable – or even popular. Means-testing the Winter Fuel Allowance for pensioners to save £1.4bn annually was not smart. Raising the eligibility for getting any state pension at all in the future would save far more. I’m due to start being paid it after my 67th birthday, on January 11, 2033. Why? I think I should have to hold out until I’m 70. Why should I get to travel on the tube for free in London next year?
At the other end of the age scale, why should school leavers suddenly be eligible for Universal Credit? Should they really go from having their parents pay for everything to the state doing so with no intervening period whatsoever? Why not require them to go off to work for a couple of years?
Why presume that those who are depressed are better off on welfare than working? Why presume that those who are disabled are incapable of doing any work of any kind? Why presume that those who really are unable for work require higher welfare payments that the unemployed who are ready and able for work?
So many tough, sensitive questions that for too many years society has felt it awkward to ask.
Fraser Nelson, writing in The Times, stresses the scale of the challenge, but also the opportunity due to the number of people on benefits who would prefer to work if that choice was financially rewarded rather than penalised.
He says:
Barnsley council’s report into its own workless showed far more people interested in returning to work than official estimates suggest. That suggests a national pool of unused talent of some 4.5 million. Adding such a number to the workforce would mean £80 billion a year more in tax revenue, says the Cebr, and give Britain one of the G20’s fastest-growing economies.
All is not lost. The ruinous cycle of welfare dependency could be broken – ironically enough by a Labour Government. The danger for them is that they endure the howling and wailing of the BBC, The Guardian and their backbenches to save £5bn or £10bn when £50bn or £100bn is the scale needed for national salvation. That day of reckoning is surely coming. The only question is when.
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