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After the impact of the austerity, growth must be everything

A Labour government will need money so that vital public services don’t fall through the cracks

Image: TNE/Getty

I don’t think “Concrete Week” was on the Tory Party’s campaign grid for the end of the silly season. But the threatened collapse of hundreds of jerry-built schools dominated the headlines for days, nonetheless. A week later it was the turn of prisons: whatever the immediate cause of the jailbreak by a dangerous terror suspect from Wandsworth jail, it, too, was revealed to be a crumbling, understaffed and vermin-ridden mess.

Then it was the turn of councils. Birmingham City Council’s high-profile bankruptcy declaration, which is certain to wipe out all non-essential services as a result of a £760m penalty over failures to meet equal pay regulations, could be the first of many.

The combined impact of these stories should be an FAFO (fuck around and find out) moment for British politics. It turns out that if you mess around for years, imposing austerity on the least-loved corners of public infrastructure and denying poorly paid female workers their rights, the catastrophic consequences may be visited on you all at once.

And while Labour are reaping the benefits of an early autumn in which everything seems to go wrong for the government, they’ll need to learn a critical lesson fast if they achieve power: that there is a time value to austerity and it is deeply negative.

Michael Mosley’s research on public health outcomes in the 2010s showed how the delayed impact of NHS cuts caused tens of thousands of excess deaths. Now we’re seeing hundreds of schools declared unsafe, soon likely to be followed by other public buildings, while the very councils that are supposed to manage these risks are hitting the buffers in terms of solvency – all due to cuts made in the austerity years.

Because the equal pay scandal that is now catching up with councils was not simply the result of casual sexism: in town after town, council services were privatised because the contractors tacitly agreed to terms and conditions for their workforce that have subsequently been found unequal.

Once the worst of austerity was over, George Osborne famously declared that the Conservatives had “fixed the roof while the sun was shining”. The RAAC concrete scandal shows, just as the Grenfell Report will no doubt show, that they literally did the opposite. They used local government cuts to hide the huge impacts of austerity, calculating that voters would blame their Labour, Liberal Democrat or often independent-controlled councils for the subsequent collapse in service quality.

Now the whole country is set to pay the price. The £55bn it would have cost to enact Labour’s schools rebuilding programme will probably be way more today, because of inflation and because of the need for emergency Portakabins. As for the cost of settling equal pay claims across Britain’s major local authorities: in both Glasgow and Birmingham it topped three-quarters of a billion pounds.

I have yet to see a single, reliable estimate of the total liability of the local government sector for these failures, but it will run into hundreds of billions – money that the stagnant UK economy can neither generate through increased taxation, nor borrow without incurring massive interest costs.

This, in turn, creates a challenge for the left. It’s become fashionable, after Keir Starmer’s reshuffle, to declare his project neo-Blairite. But Tony Blair had money. The 2001 Wanless Report alone triggered a one-off hike of NHS spending from 7% of GDP to 10% by the time Gordon Brown left office. Even after the New Labour project hit crisis with the 2008 financial crash, the party spent its last two years in government enacting counter-cyclical measures to boost growth.

So what we’re about to face, if the polls are correct, is a Labour government that starts from a position of enforced austerity. The only precedent for it is James Callaghan after the 1976 IMF crisis.

Because the Truss administration tanked financial market trust in the British government, Labour is right to be super-cautious. Its twin rules are borrowing only to invest, and pegging all spending promises to specific and fairly minor tax-raising measures (like VAT for private schools). Promises made when the cost of government borrowing was 0.5% (in the summer of 2021) look much more expensive when the cost is 4.5%.

So growth is the key to everything. But how do you run a club to encourage schoolchildren to study Stem subjects (science, technology, engineering, maths) in a school that has been decanted to Portakabins? How do you encourage councils and city-regions to invest in the kind of infrastructure that brings investment, when they’re terrified that a raft of liabilities will force them insolvent?

Even the one central project that has been at the core of Labour’s proposed investment story – renewable energy – emitted a spectacular failure signal last week, when it emerged that not one of the contracts to build new offshore windfarms was bid for, because the proposed price of the energy to be produced was set too low.

The political challenge is that, for the electorate, the paralysis story is easy to understand: there’s no growth, there’s no money, there’s not much we can do. That’s why I want to see Labour saying what it will do, for definite, with cast-iron commitments linked into a coherent narrative.

The party has to tell a story of hope. This Hope Story has to explain how changes in regulation, investment and governance can boost growth to the point where taxing, spending and borrowing – the key instincts of social democracy – become self-reinforcing, and unleash the potential locked up by economic stasis. But I am still waiting to hear it loud and clear.

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