A coalition of chaos: where next?

Posted by Chris Hart - Wednesday, 4 Dec 2019


The following extract is taken from chapter  ‘A coalition of chaos: where next?’ by Rosie Campbell, None past the post: Britain at the polls 2017, ed Allen and Bartle, Manchester University Press 2018

The austerity mammoth

Austerity is the first of our two mammoths that the new government and the other parties must confront. Austerity was the Conservative’s prescription for the British economy in the aftermath of the 2007– 08 financial crisis and subsequent ‘great recession’. The crisis was triggered by the discovery of high- risk or ‘sub- prime’ mortgages wrapped up in American financial products marketed as low risk. The trouble soon spread to Britain, where there was a run on a number of banks that were exposed to these risks, most notably Northern Rock. The Labour government responded with effective but costly bailouts – including taking some institutions, such as the Royal Bank of Scotland and Lloyds TSB, into public ownership. The financial crisis caused a massive contraction in lending and a ‘credit crunch’. With the government stumping up so much cash, Britain was confronted with a massive structural deficit, where public spending commitments would continue to outstrip tax receipts well into the future.

The Conservatives under David Cameron and George Osborne responded to the crisis by arguing that the Labour government had failed to ‘fi x the roof whilst the sun was shining’ (conveniently forgetting that they had, to that point, promised to match Labour’s spending plans). Cameron and Osborne advocated a series of swingeing cuts to public spending. They were not, however, the only ones to respond in this way. Despite their subsequent anti- austerity rhetoric, neither Labour nor the Liberal Democrats promised lollipops and ice cream for everyone. The authoritative Institute for Fiscal Studies described Labour’s. The Liberal Democrats also accepted the need for cuts and became full parties to austerity after joining the coalition in May 2010.

Whether Tony Blair and Gordon Brown’s governments could have done more to protect Britain from the crash by restricting public spending has been the subject of fierce debate. Certainly, their government’s light- touch regulation of the banking sector was criticised by a broad range of commentators. In political terms, however, what mattered was that the mud stuck to Labour. The Tory-led coalition initially escaped censure. A 2011 ICM poll for the Guardian showed that 30 per cent of respondents blamed the economic slow- down on ‘debts Labour racked up’ compared to 24 per cent who blamed coalition cuts.

The policy of austerity had a severe impact on many Britons’ quality of life. By 2017 many public sector workers had effectively gone without a pay increase for nine years, and some welfare benefits had been cut substantially. Before the financial crisis foodbanks were almost unheard of in Britain. By 2017 there were over 2,000. Moreover, while key public services, such as the NHS and schools, were protected from cuts, investment was still insufficient to meet rising demands. Consequently, many services were struggling, while those areas left unprotected, such as social care, were very badly hit.

The 2017 Conservative manifesto continued to support austerity, alongside several policies aimed at struggling families. Labour’s 2017 manifesto, For the Many, Not the Few, no longer advocated moderating the cuts, as it had done in previous elections, but challenged austerity head on and promised greater investment in public services. Labour’s success, relative both to prior expectations and its performance in the 2010 and 2015 elections, intensified the pressure on the Conservatives to moderate their plans. Many commentators and politicians interpreted Labour’s appeal in 2017 as a belated reaction to ten years of cuts and misery.

There is evidence that the public’s attitudes to austerity have changed. Since 1983 the British Social Attitudes survey has regularly asked respondents to choose from among three courses of action open to the government: ‘Reduce taxes and spend less on health, education and social benefits’, ‘Keep taxes and spending on these services at the same level as now’ or ‘Increase taxes and spend more on health, education and social benefits’. The pattern of responses reveal a clear ‘social desirability bias’: few select the option of reducing taxes and spending. The balance of support for increasing taxes and spending and keeping taxes and spending at the same level is more informative. Under the Conservatives from 1983 to 1997, the public were more likely to choose increased taxes and spending over the status quo. Then, under Labour from 1997 to 2010, preferences began to shift. From 2006 to 2015 the proportion favouring the status quo exceeded the proportion wanting taxes and spending to be increased. The gap steadily narrowed until, by 2016, more people (48 per cent) wanted tax and spending increases than wanted them to stay as they were (44 per cent).

This shift is likely to continue unless there is a change of policy. It also adds to the pressure on the Tories to loosen the purse strings. Less than a week after polling day, opposition to austerity found a new impetus in the public response to the Grenfell Tower tragedy: a fi re ripped through a London high- rise block, killing around 80 people and injuring over 70. At least some of the blame was soon focused on cuts to local housing authorities’ budgets. A more immediate pressure on the Tories to loosen the purse strings comes from the DUP, which is opposed to some austerity measures. A number of DUP figures have hinted that they would act as a ‘brace against hard austerity’.

Several other factors also make the Conservatives’ continued commitment to austerity look shaky. Labour’s unexpectedly good electoral performance led some Conservatives to question whether persisting with severe spending cuts is either in Britain’s economic or their party’s electoral interests. Theresa May’s precarious position also makes the government vulnerable to demands from ‘big beasts’ within the cabinet, such as Boris Johnson, who have an eye on the leadership and are willing to spend in order to curry favour with others.

Just two months after the election, the government announced the partial lifting of the 1 per cent cap on public sector pay rises, including for the police and prison officers. While the chancellor of the exchequer, Philip Hammond, conceded that the public was ‘weary’ of austerity, he remained adamant that increasing public borrowing was not the solution. Public sector net borrowing in 2017–18 was forecast to be £ 58 billion or 2.9 per cent of GDP.

Conservatives undoubtedly view taxation and spending as too high. It is an article of faith for them that left to their own devices, markets will deliver prosperity. More pragmatic Tories, on the other hand, view the evidence for this assertion more sceptically and may be rather more willing to trim policy.

The Tories’ internal debate about the size of the state, like Brexit, represents a fault line that threatens the government’s stability. If continuing with cuts produces growth, the government may receive an electoral boost. If cuts produce sluggish growth of the kind observed since 2010, the Tories may be punished for both failing to improve the public services and presiding over a deteriorating economy. The government’s fate will depend on this key economic judgement. It will also depend on luck. As the financial crash and credit crunch proved, governments are extremely vulnerable to developments in the global economy. And, if many economists are right, the other mammoth challenge presently facing the government –  Brexit –  may flatten the economy.

The Brexit mammoth

To say that Brexit is the second mammoth issue facing the government, parties and the country is something of an understatement; it is certainly the biggest and heaviest beast. The ramifications of extricating Britain from the EU are colossal.

On 29 March 2017 Theresa May triggered Article 50 of the Lisbon Treaty, signalling Britain’s intention to leave the European Union. Article 50 sets out how member states can quit the EU and provides for a two- year process. Unless there is massive pressure to halt the process from the public, Britain will leave the EU on 29 March 2019. Such a change of opinion by voters seems highly unlikely: there is little evidence of widespread ‘Bregret’. Opinion polls suggest that a majority of voters continue to believe that the outcome of the referendum should be honoured. Although the occasional poll provides a small glimmer of hope for Remainers, any shift in public opinion would need to be far larger and sustained over a prolonged period if it were to induce the government to halt Britain’s departure from the EU.

Masses of legislation will need to be passed as a result of Brexit, and new bodies created to take the place of EU regulators. But before the task of building the post- EU legislative infrastructure can be completed, a deal with the EU needs to be thrashed out. The EU has so far resisted negotiations on any post- Brexit deal until a ‘divorce settlement’ is agreed to cover the UK’s share of ongoing liabilities. This is likely to be costly and thus politically sensitive. Moreover, negotiating with an organisation made up of 27 member states is not straightforward. It took Canada seven years to conclude a free- trade agreement with the EU. The UK hoped to complete the same task, along with many others –  such as negotiating common security policies and agreeing immigration procedures –  in just two years.

Given the breadth and complexity of negotiating Brexit, it is probable that there will need to be a transition period in which EU rules continue to apply to the UK. Theresa May has described such a period as an ‘implementation phase’ and has suggested that two years should suffice. Any whiff of delay involves risks, however. Hard Brexiteers in her own party and elements of the right- wing press are ready to cry ‘betrayal’ at the mention of transition arrangements. The election was almost certainly meant to free her from the influence of such groups, but it has made her more vulnerable to their machinations. If there is no deal, Britain risks a ‘cliff edge’ departure from the EU in 2019. In these circumstances, it would have to revert to World Trade Organization (WTO) tariffs in its trade with the EU, and some travel agreements could cease to operate. Most business leaders dread this prospect, although some –  such as the vacuum- cleaner entrepreneur Sir James Dyson –  agree with May’s pre- election claim that ‘no deal is better than a bad deal’. They see such an outcome as an opportunity to embrace cheap imports from the rest of the world, and they believe that competition will act as a spur to greater effi ciency even if some fail.

The pro- Brexit minister presently responsible for exiting the EU, David Davis, has said that Britain is ready for no deal, even if it is not the most desirable outcome. For a deal to be secured, several contentious issues still need to be resolved, including the size of the divorce bill, the fate of EU nationals living in the UK and of British citizens living in the EU, and the delicate matter of the border between Northern Ireland and the Republic of Ireland. Theresa May signalled her willingness to compromise on some of these issues in a major speech in Florence in October 2017, but the biggest EU players, Germany and France, were still not satisfied with the size of the proposed financial settlement.

The government’s difficulties in delivering Brexit are not limited to managing negotiations with the EU, however; they are supplemented, indeed exacerbated, by parliamentary considerations. On the one hand, MPs will be extremely busy over the coming years as they pass Brexit- related legislation. There will be plenty of opportunities to delay or obstruct these laws. On the other hand, most MPs, including Tories, were Remainers and would prefer a soft Brexit. The numbers are thus generally against any government pursuing a hard Brexit or flirting with a ‘no deal’ outcome. Furthermore, there is an electoral incentive for the other Westminster parties, with the exception of the DUP, to undermine the government. A drawn- out process of government defeats and amendments may be imminent. The Conservatives will be keen to avoid a repeat of the delay and strife that accompanied Parliament’s ratification of the Maastricht Treaty in the early 1990s. Far from resolving the issue, as David Cameron wished, the outcome of the referendum has created new conflicts. The Tories are still ‘banging on’ about Europe.

Finally, the Conservatives’ pledge to ‘take back control’ of the UK’s borders in the general election campaign may create tensions with their new partners in the DUP. This party’s position on Brexit is complex. It supported Brexit in the referendum but is concerned about the impact of leaving the EU on agricultural subsidies. The DUP is also opposed to a hard border with its southern neighbour because of its likely impact on the Northern Irish economy. It is far from clear how the Conservatives can reconcile their pledge to the UK electorate with the concerns of the DUP. It is clear, however, that pushing all the Brexit legislation through Parliament will almost certainly be a gruelling experience.

Professor Rosie Campbell is Professor of Politics and Director of the Global Institute for Women’s Leadership at King’s College London

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