Theresa May’s big promises mean nothing while she defends austerity

We know austerity has failed, but the Tories stand by it


In her party conference speech Theresa May promised change within the Conservative Party, declaring: ‘it’s time to remember the good that government can do.’

Journalists have been queuing up to announce a new era in British politics.

Allister Heath wrote in the Telegraph of May’s ‘repudiation of the Thatcher-Reagan economic world-view’ and her apparent recognition that government is ‘the solution, not the problem’. Meanwhile, John Gray in the New Statesman has claimed that May ‘has broken with the neoliberal model that has ruled British politics since the 1980s’.

But where’s the evidence for all this? Gray points to May’s tax reform pledges (promises Cameron also made), her plans for a national industrial strategy (again, sounds familiar) and her commitment to increasing the role of the state (ditto). So none of these policy pledges are new.

Of course, Cameron failed to deliver: his £4 billion industrial strategy was insufficient, and Starter Homes did little to help the 1.8 million people in the UK awaiting social housing. But where is the evidence that May will be any different?

The thing that obviously hampered Cameron was his commitment to austerity. Increasing the role of the state isn’t an easy task if you’re also determined to cut government spending.

And here’s the thing: for all she talks about change, May is still insisting that ‘the government continues with its intention to reduce public spending and cut the budget deficit’. She has used PMQs to defend austerity as ‘living within our means’.

This policy is so wrongheaded, and indicates that May — far from having abandoned neoliberalism — remains committed to reducing the role of state.

Firstly, the justification for austerity is false.

The first thing to point out is that this notion that we have to live ‘within our means’  is deeply misleading. This is something that the head of Tax Research UK, Richard Murphy, has been arguing for a long time. He points out that cutting the deficit simply isn’t necessary when the government is able to print money.

We have been doing this for some time now with Quantitive Easing. QE is basically the Bank of England creating money electronically so it can buy bonds — the intention being to inject cash into the economy.

But QE also serves another purpose. Many of the bonds that the Bank of England have been buying up are government bonds (IOUs issued by the state so that it can fund its spending plans). £376 billion worth to be precise.

To put it plainly: the Bank of England has been printing money so it can buy government debt and effectively write it off.

With one hand the government has been taking money away from Britain’s poorest because it says it needs to clear its deficit. With the other its bank has been busy magicking money out of thin air.

In short, QE makes a total mockery out of the idea that we have no option but to cut government spending. As Murphy argues, it proves we can easily pay off the deficit via other means.

Austerity has also destroyed the economy. In spite of May’s continuing commitment to it, this is something that almost every leading authority on economics is now in agreement on.

For instance, the International Monetary Fund — an institution that is generally considered to be economically right wing — recently published a report singling out the UK in which it argues that ‘episodes of fiscal consolidation [austerity] have been followed, on average, by drops rather than expansions in output’.

But surely in the UK austerity has triggered growth? This is something many argue, pointing to the recent economic recovery and the dramatic rise in employment  under Cameron. But both claims are again misleading.

Cue Andy Haldane, chief economist at the Bank of England. In his speech entitled Whose Recovery? he recently pointed out that this growth in GDP (national income) doesn’t factor in population growth — and that once this has been taken into account, GDP can be seen to have only grown by one per cent since 2009.

The truth is, Haldane argues, average household income has ‘effectively stagnated’. In parts of the UK, wealth is actually down.

An even bleaker picture has been painted by the chief Economics commentator at the Financial Times, Martin Woolf. Woolf argues that austerity measures have brought about ‘the slowest British recovery on record’, resulting in a period of ‘dismal underperformance’.

So what about job creation? Though employment has risen since 2010,  the crucial caveat — as the TUC have made clear — is that only  in 40 jobs created between 2008 and 2014 were full-time. On top of this, we in the UK are suffering from the second biggest fall in wages in the EU.

This would all appear to vindicate the IMF’s claim that austerity is seriously destructive.

Even Iain Duncan Smith seems to have recognised this. His letter of resignation criticised austerity policies that were ‘more and more perceived as distinctly political rather than in the national economic interest’.

So the IMF, the Governor of the Bank of England, the Financial Times and Iain Duncan Smith all acknowledge that austerity has hurt the economy. But not Theresa May.

The human cost

Describing the impact of austerity, Danny Dorling (perhaps the country’s leading social geographer) has cited figures produced by the Public Faculty of Health suggesting that in 2013 cuts to services resulted in 23,000 early deaths.

All in the name of paying off the nation’s debt — when in fact, under Osborne national debt rose by trillions. Given the chorus of disapproval, May could have easily chosen to abandon this project — but she has not.

I struggle to see in light of this how she can make good on her promises, or prove to be a centrist committed to expanding the role of government.

Luke Davies is an academic researcher at UCL and a freelance journalist

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