And so we move on to part two of the chronicle of the
Conservatives’ remarkably profligate attitude towards other people’s money,
despite what Margaret Thatcher may
have led you to believe in 1978. Here is part one.
This revisionism is not solely directed at
Conservative hypocrisy – tempting as that may be – it also exposes the barren
hulk of the current Labour party, which promises to transport us back to the
halcyon days of early David Cameron. Another of Margaret Thatcher’s famous
lines was to describe New
Labour as her greatest achievement. “We forced our opponents to change
their minds,” she said. And we haven’t stopped paying for it since.
Housing
If any part of British society bears the unmistakable
imprint of Thatcherism – and almost all do in some way – it is the housing
sector. The policy of the ‘Right to Buy’ – allowing council house tenants to
buy their homes at discounted rates – undoubtedly came to embody the
Thatcherite promise of creating a ‘property-owning democracy’. In awarding her
the Presidential Medal of Freedom, the elder
George Bush commended Thatcher for putting “private roofs over British heads”.
But the policy, because it also involved preventing councils from replacing the
stock they had to sell, had one consequence that was the polar opposite of
owning your own property – having to rent it.
The
number of private renters has more than doubled since the turn of the century
and that doesn’t include those renting from housing associations. This change
was enabled by classic Thatcher-era legislation, the 1988 Housing Act, a
deregulatory bonfire which introduced short-term tenancies, allowed
landlords to charge whatever rent they liked, and got rid of any security of
tenure for tenants, permitting them to be evicted with only two months’ notice.
It presaged a huge change from the post-war social democratic settlement which
was characterised by a mix of owner occupation and council housing. “The
private landlord, increasingly associated with the rack-renting of slums was
nearly eliminated”, wrote historian David
Edgerton of that period.
But this brave new (old) world which saw the triumphant
return of the private landlord and the phasing out of council housing had
consequences: the number of private tenants who couldn’t afford the rent, and
thus became reliant on financial assistance from the state, shot up. The amount
spent on housing benefit increased from less than £2 billion to £24 billion in
2015/6 and now stands at over £30
billion a year. This is a public subsidy to landlords to make up for the
fact that the level of rent they are charging is beyond the capacity of their tenants to pay. True Thatcherite
Conservatives like to present the enormous housing benefit bill as indicative
of out-of-control welfare spending that needs to be pruned back but, in fact, it
is a direct result of their deliberate gutting of the post-war social order.
Speaking of which, the Cameron/Osborne administration did
successfully, although temporarily, reduce the size of the housing benefit
subsidy. Naturally, this was through eliminating tenants’ entitlement to it –
through denying it to under-21 year olds and introducing a benefit cap – rather
than reducing the need for it by cutting rents. Curiously though, a little
publicised feature of the Conservatives’ 2016 Welfare Reform Act did indicate
the financially sensible nature of the latter approach. ‘Social’ Landlords –
i.e. local councils and housing associations – were required to reduce rents by
1% a year for four years. According to a House
of Commons Research Briefing, “of all the measures implemented to date, the
requirement on social landlords to reduce rents …. has achieved the highest
level of saving.”
Innocently, you might think therefore that such a policy of
rent capping should be applied to the private sector, where rents, the number
of renters and the housing benefit subsidy have all mushroomed over the last 30
years. But such an idea doesn’t factor in how the Conservatives are the party
of asset owners, whose interests – even if reliant on a huge state subsidy –
must be protected at all costs. Rent control, if applied to the private sector,
seems to cause an irrationally vituperative reaction among Conservatives.
Friedrich Hayek, Margaret Thatcher’s favourite philosopher, described the
policy as “deadly”. More recent adepts have condemned it as almost
as devastating to a city as bombing it.
At the other end of the scale, the Conservatives have
subsidised the deposits and mortgage repayments of first time home (usually
flat) buyers through the Help to Buy scheme launched in 2013 which has so far
cost £21
billion. Aside from artificially raising house prices, and thus benefiting
housebuilders like Taylor Wimpey, the scheme has left recipients high and dry
after the huge rise in interest rates, and thus mortgage interest payments,
following the Truss debacle. But such is the Conservatives’ obsession with home
ownership, seen as such an indelible part of Thatcher’s remodelling of British
society, they are prepared to move heaven and earth – including their own allegedly free market
ideology – to massage the optics.
The Economy
The Conservatives did not, it should be said, instigate the
huge state bail out of the banks that the British government felt it had no
choice but to pay following the 2008 financial crisis. That was the prerogative
of the last Labour government. But market fundamentalist Thatcherite ideology –
convinced of the inherent wisdom of allowing those at the top of society maximum
leeway – was certainly in
attendance in spirit. And the Sunak
administration is pursuing the very sensible policy of removing
the regulations that Cameron introduced as a sop to the prevailing
zeitgeist that something had to be done to prevent 2008 from playing out again.
I’m sure it’ll end well.
What can be laid at the door of Thatcher’s children,
however, is subsequently using the exclusive money generating power of the
state to massively augment the wealth of the richest in society. This was
through the capital creating policy of Quantitative Easing (QE). Since 2008, QE
has been deployed three times – immediately in response to the financial crisis
(Labour), after the Brexit vote (Tory) and then again in the economic panic
that ensued post-Covid (Tory) – totalling £895 billion in Britain alone.
QE works by creating a huge mass of money (so-called fiat
money), that naturally seeks investment opportunities. The stock market is one
of those investment outlets, although the booms engineered are decoupled from
traditional market reasoning – the backing of companies because they are
thought likely to be successful in the future. The resultant “explosion
in billionaire wealth” – the cumulative wealth of the UK’s top 10
billionaires has increased
by 281% since 2009 – therefore cannot be explained solely, or even mainly,
by the natural workings of the market. During the pandemic for example,
economic activity and growth plummeted but the
number of UK billionaires rose by a fifth. This huge wealth – a billion is
a thousand million – has been given a stupendous boost by positively Stalinist
state intervention, carried out by, among others, devoted Thatcherites.
It should also be pointed out that Quantitative Easing
directly contradicts one of the core tenets of original Thatcherism, that of
monetarism. Developed by the American ‘free market’ economist, Milton Friedman,
monetarism held that, to combat inflation, the supply of money should be
strictly controlled. Doubtless the theory was honoured in the breach by ’80s
Conservatives, but from the 2010s government policy around the world has simply
laughed at it. Whether the inflation we are now experiencing has something to
do with massive increases in the money supply – á la Friedman – is a moot
point. In the last decade, notwithstanding regular doses of QE, the main threat
was deflation, not inflation, suggesting that the capital boost of QE had
stayed within the financial system. Possibly the last tranche of it – the
creation of $834
million dollars an hour worldwide for 18 months – was so huge that some of
it, in line with the official narrative, leaked out. Or maybe support for a
largely mothballed ‘real’ economy – i.e. increasing the amount of money in
circulation but reducing the amount of goods – produced the classic ingredients
for inflation. Who knows?
Certainly now, we are seeing the opposite of QE, so-called
Quantitative Tightening (QT), on the part of the world’s central banks, along
with increases in interest rates. Whether this presages a new financial crisis,
which
may be unfolding as we speak, is an interesting question. But to even make
a dent in the massive inequality caused by the economic intervention of adoring
Thatcherites it would have to go on for decades.
Possibly Conservatives would retort that their post-Thatcher
predilection for economic intervention does not just help those at the summit
of the society but also the many millions at the bottom end. This is through
working tax credits which ‘top up’ low or moderate incomes. Tax credits were
introduced in America in the 1970s and expanded massively by Bill Clinton. Naturally,
this country followed suit, and working tax credits became a core part of New
Labour’s welfare philosophy (with emphasis on the working).
Their origin among parties theoretically antithetical to
Thatcherism and Reaganism is deceptive, however. In reality, tax credits are
another form of state subsidy to vested interests, enabling employers to pay
low wages and institute more part-time or zero hours contracts with the
assurance that the state will meet the shortfall. They are an essential part of
our Thatcherite economic landscape. In 2015, the charity Citizens UK revealed
that large retailers, such as Next and Tesco, were costing taxpayers £11
billion annually so that their staff could enjoy
“a basic standard of living”. The situation has only become more acute in
the interim.
Perfunctory, if high profile, attempts to wean on employers
off tax credits, such as Osborne’s higher minimum wage, have not worked partly
because they have been accompanied by a never-ending war on trade unions, the
one force in society capable of making tax credits unnecessary through
compelling employers to pay higher wages. Rishi Sunak’s anti-strike
legislation, which permits employers to seek damages for the effect of strikes,
will hit what’s left of trade union power, already hobbled, as we know, by
archetypal Thatcherism. Tax credits in themselves are hostile to trade unions
because if wages rise because of trade union influence, the tax credit level
will fall as a result. It is no accident that a country such as Norway, which
regards trade unions as social partners, not ‘the enemy within’, and which has a
system of sectoral
collective bargaining to determine wages, has not introduced tax credits. It doesn’t even
have a minimum wage because strong trade unions mean it isn’t necessary.
Norway, incidentally, also has a much higher standard of
living.
It’s clear that the Thatcherites in Britain didn’t vanquish
‘socialism’ as they claimed they had. They merely changed the beneficiary
group.
Covid and Corruption
There is something viscerally enraging about the
Conservatives’ fiscal incontinence during the Covid pandemic. It came after years of justifying taking
money away from poor people – through policies like the benefit cap, sanctions
and reducing the amount received by sickness claimants by £30 a week – on the
grounds that it was only
fair to the hard-pressed taxpayer.
But the interests of the taxpayer, allegedly so close to
Conservative hearts, were strangely downgraded during the Covid lockdown when
corruption and the raiding of the public purse by friendly businesses were
rife. Virtually no prosecutions concerning the £5.8 million lost through fraud
have taken place despite 30,000 allegations of fraud being reported to HMRC.
The same is true of Rishi Sunak’s month-long Eat Out to Help Out scheme, which attracted
an estimated
£21 million in fraudulent claims from the hospitality sector. This dawdling
contrasts with the alacrity that the Conservatives look upon alleged fraud in
the benefits system. Permanently staffed hot-lines for the public to report
fraud, regular tests for sick and disabled people, and the dispensing of
thousands of sanctions to claimants for not upholding their “contract with the state”, have been features of this parallel universe in the UK for years.
In total £4.3 billion lost in fraud during Covid has been
written off by the Treasury, prompting one minister in the House of the Lords
to resign and accuse the government of “having little interest
in the consequences of fraud to our society”.
But far from having little interest in it, Conservatives
seem positively in favour of subverting free market ethics when it involves
their friends. Michelle Mone, accused of secretly
receiving some of the profits of a PPE firm that won large government contracts
after she recommended it ministers, became a Conservative life peer in
2015. Altogether, nearly
£1 billion in Covid contracts were awarded to 15 companies linked to donations
to the Conservative party. It certainly pays to network.
The Conservatives’ alleged concern with getting value for
money for the taxpayer is for the birds. The overriding aim is that 1) A narrow
elite circle benefit and 2) The cash – otherwise known as other people’s money
– finds its way through labyrinthine sub-contracting to the “good hands” of the
private sector. Dido Harding, appointed as chair of “NHS Test and Trace” in
2020 is an example. Her lack of medical experience was no obstacle. Known as
“an accomplished networker” according to The
Times, she went to Oxford with David
Cameron, married a future Conservative minister, and rose to become the chief
executive of a mobile phone company and a Tory peer. Despite being given an
astronomical £37 billion in funding, Test and Trace, reliant on sub-contracting
by firms like Serco and consultants paid up to £6,000 a day, was a monumental
failure, with
more than 60% of those with Covid symptoms not being contacted. By
contrast, the in-house teams of the doomed
Public Health England and local authorities reached nearly 98% of their contacts.
Go figure.
Ubi omnes errabis?
As alluded to earlier, this is not about simple hypocrisy.
Arguably most political movements are hypocritical in that they don’t do what
they say they are going to. The historical reputation of the Britain and
America is that they compelled the rest of the world to accept the virtues of
free trade, whereas in reality they were arch protectionists, and in Britain’s
case, actually destroyed the industries of competitors through imperialism.
But Thatcherism started out with free market intentions. In
its early days it preached the tenets of monetarism and controlling the money
supply, sold off loss making industries to the private sector, declared war on
trade unions as impediments to ‘free’ employment relations and hiked interest
rates (causing a huge recession and remaining unmoved while thousands of
businesses who couldn’t survive in the new unforgiving environment went to the
wall). Only gradually – through for example contracting out essential public
services and bailing out ‘too big to fail’ banks – did it morph into something
else. Now the Thatcherites, notwithstanding their free market sheen, are
presiding contentedly over a system of socialism for the rich.
Partly this is to do with misunderstanding what conservatism
is. Friedrich Hayek, the major intellectual influence on the modern
Conservative party, succeeded in reconnecting it to its classical liberal, or
‘old Whig’, philosophical inheritance. According to him, this
conservative-liberalism, in contrast to idealistic socialism, had a “low” view
of human nature. Hayek famously said that everything would turn out well if
everyone behaved selfishly. But this selfishness was meant to exist within the
law and the rules of the free market.
But nobody, besides intellectuals, believes in the sanctity
of the free market. Many wealthy people will go where they can make even more
money and the state, which rakes in and distributes hundreds of billions of
pounds, offers that opportunity. The corruption around Covid illustrates the
temptations and modern privatisation more broadly relies on the existence of a
well-endowed state which can re-distribute taxpayer funds to the private
sector. The Conservatives have, for years, been resolutely unforgiving about a
‘something for nothing’ attitude on the part of the multitude. Benefit
sanctions, already at
an all-time high, are being multiplied
still further by Jeremy Hunt. But for the rich this sternness melts like
ice left out in the sun. This is because the Conservatives are, and always
were, a class-based party and exponents of class solidarity. When Tony Blair
declared in 1999 that the class war was over, only one side was listening.
But the degeneration of Thatcherism has deeper causes than
just the class bias of the Conservative party. Thatcher tapped into a profound
conviction among Conservatives that if burdensome regulations and socialistic
rates of taxation were lifted, the result would be prosperity for all and
runaway economic growth. This certitude can be traced back to Adam Smith who
thought the “natural effort of every individual to better his condition” was so
powerful a principle it would carry society to “wealth and prosperity” and
surmount ignorant obstacles placed in the way by “the folly of human laws”.
Coincidentally, the UK did
– in common with the rest of the world – experience an economic boom in the
mid-1980s. Naturally, Thatcherites took this as confirmation of the economic
wisdom of their policies, which despite the temporary pain involved, had to be
persevered with (actually the pain was probably connected to the ensuing boom,
capitalism had always relied on a shake-down of capital value to lay the ground
for subsequent growth). In fact, the economic boom of the mid-1980s became
lodged in the public mind as the consequence of tough Thatcherite medicine and
has endured despite the boom being revealed as a unique event. Economic
growth has declined in every decade since the 1980s, culminating in the
present torpor. Real wages are not predicted to return to their 2008 level
until 2026 and are experiencing a
3.9% annual decline, productivity is terrible when compared to before the
Financial Crisis (0.5% compared to 2.3%), and
business investment is anaemic.
But rather than face up to these issues, Thatcher’s children
are umbilically attached to the idea that the only solution is more
deregulation and tax reductions for the investors. These policies – known as
supply-side reforms because they concentrate on those ‘supplying’ investment
and employment (or not) – are religiously propagated by many conservatives
despite the fact that they have already been implemented, with the results we
see before us, for nigh on four decades (the
corporation tax rate was 52% in 1981, it is now 19%). Liz Truss, for
example, convinced herself that a bias towards redistribution over economic
growth lay at the root of poor economic performance despite the evidence
pointing in exactly
the opposite direction.
One very obvious reason why these questions are not honestly
examined, is that it would move into the crosshairs numerous Thatcherite
shibboleths, most notably the idée fixe that underperforming economic growth
can be palliated by reducing tax rates and irksome regulations on the wealthy.
This ‘fix’ seems to be impervious to empirical evidence, though the Sunak
administration is finally increasing corporation tax after decades of
reductions, hoping no-one will notice that this contradicts a basic tenet of
conservative economic philosophy.
As the South Korean economist
Ha-Joon Chang pointed out a few years ago, the level of regulation is not a
disincentive if there is a prospect of profit to be made. “…. strange as it may
seem to most people without business experience,” he wrote in 2010 “businesspeople will get 299 permits … if
there is enough money to be made at the end of the process. “In contrast, if
there is little money to be made at the end of the process, even 29 permits may
look too onerous.”
Why there is in the UK “little
money to be made” – with the notable exception of finance and property – is not a question many are eager to ask, especially if it
indicts their whole economic strategy which supposedly rests upon the inherent
virtue of making money.
Herein lays the explanation as to
why Thatcherism has degenerated into a system of socialism for the rich. It’s
quite possible – indeed common – to remain ideologically blinkered in the face
of evidence showing the hollowness of your ideology. It’s even possible to implement
policies, such as corporate tax cuts, that do not have the beneficial effect
you say they will. But it’s not possible to ignore the real world consequences
of the failure of your economic philosophy. That is why free market Thatcherism
has degraded into a swirl of subsidies, bail-outs, phoney privatisations,
landlord patronage and plain corruption. They’ve been necessary because the
free market hasn’t been able to prosper under its own devices and if you, as a
party, represent the interests of asset-holders at the end of the day, they
aren’t especially difficult choices to make. And in those circumstances, delving
into the ready pile of “other people’s money” becomes irresistibly tempting.
But the remains – what
lies at the root of economic failure?
