The Tory government is facing a perfect storm, faced with tumbling stock markets and the coronavirus pandemic. Added to this is the looming calamity of Brexit, which will only compound the crisis and add to the economic gloom.
The British economy was already slowing down fast. But it is now being thrown into disarray by the unfolding coronavirus and its paralysing effects. The world economy is also threatening to collapse, with catastrophic consequences.
Caught between the devil and the deep blue sea, the government is in a state of panic. The idea of ‘fixing the roof while the sun shines’ has gone out of the window. Fiscal ‘responsibility’ - the key mantra of the Tory Party for decades - has been ditched.
What a change of tune! All talk of balanced budgets and financial prudence has ended. Instead, the spending taps have apparently been turned on. This is clearly not a thought out strategy, but a case of ‘desperate times and desperate measures’.
The new Tory Chancellor, Rishi Sunak, only days into the job, has announced £30 billion of stimulus in his Budget, including a £12 billion package to meet the epidemic emergency. The Bank of England likewise has reduced interest rates to 0.25%, the lowest ever.
Gaping holes in today's budget on coronavirus - no extension of statutory sick pay to those on zero-hours contracts, nothing for others without a contract of employment, no committment to increase sick pay levels, no new money for social care. Just keep washing your hands.... https://t.co/dRc5o7ptbP— Rebecca Long-Bailey (@RLong_Bailey) March 11, 2020
Sunak says this is "the biggest cash increase in public services since the Second World War". Now it seems, anything goes.
Fuel duty remains frozen for another year. The planned rise in beer, cider and wine duties is to be cancelled. The Chancellor says the government will cover sick pay costs for firms with under 250 staff. Government is to abolish business rates for small shops this year. Taxes will be deferred. Small business has been promised rate relief.
The Chancellor also promises to spend an extra £6bn on the NHS. This, Sunak assures, will pay for 50,000 more nurses, 50 million more GP surgery appointments, and work to start on 40 new hospitals.
He says the government has already pledged a "record" funding increase for the health service, with £34 billion promised over the next five years. "That means that by the end of the Parliament,” the Chancellor stated in his Budget announcement, “day-to-day spending on public services will be £100 billion higher in cash terms than it is today.”
Borrowing will increase enormously - £100 billion extra compared to the past. In addition, the projected deficit will rise from £18 billion to £40 billion in the last year of Parliament. This is the opposite of what they previously argued for.
Sunak says that his measures will all come within “the fiscal rules of the manifesto, but with room to spare”. This is nonsense.
In 2021, the Office for Budget Responsibility estimated that growth will be 1.8%, up from 1.6%. In the medium term, growth would be 1.5% in 2022 (down from 1.6%); and in 2023, 1.3% (down from 1.6%).
But this is moonshine. The last quarter of 2019 saw the British economy flatline. The first quarter of 2020 will also see a fall. This will mean we are already in a recession. But these estimates are already out of date, as they do not take into consideration the economic impact of the epidemic.
British capitalism is in a terrible condition. Investment is stagnant. Productivity has been falling.
We are also facing a new world slump. This will shatter the British economy in the months and years ahead. Sunak’s extra spending will be like a drop of water on a hot stove. But what else can they do?
“We will rise to this moment. We will get through this together,” the Chancellor told MPs. “This Budget delivers security today, but lays the foundations for prosperity tomorrow.”
This is nothing but wishful thinking, however. Such talk of ‘prosperity’ will soon ring hollow for millions of workers facing wage cuts and job losses.
The Tories’ latest promises are drastic measures to cope with a drastic situation. But they will not be enough given the downswing that will grip the British economy in the months and years that lie ahead.
The weakness of the British economy is the result of short-termism. Big business has failed to invest and modernise industry. Instead, the capitalists have preferred to speculate and put their money abroad. They have created a low-skill, low-wage economy, reliant on outside investment and cheap labour.
We have been in a crisis ever since the last slump of 2008. Despite talk of ‘growth’, there has been no recovery as far as working people are concerned. Instead, we have had a decade of austerity, with workers forced to pay for the bailout of the capitalist system. Austerity was never a ‘political’ choice, but a necessity for a system in crisis.
This surge in spending will be a flash in the pan. Who is going to pay for it? The capitalists and bankers? No - once again, it is the working class who will be presented with the bill through further cuts and attacks.
Government spending under capitalism can only come from taxation. Even borrowing has to be paid back, with interest. There is no such thing as a free lunch.
Taxation can either come from big business or from the working class. But if you tax business, they will simply cut back on investment, leading to lower growth. And if you tax workers, you will cut into demand and slow growth even further.
The spending on infrastructure projects will take years to roll out, and will have no immediate effect. As the crisis deepens, even these plans are likely to be shelved. The talk of ‘levelling up’ will come to nothing as the economy crashes. On the contrary, the north and midlands will likely suffer more than most.
The Tory Chancellor acknowledged that the coronavirus would cause “temporary disruption” to the economy. He and his friends in the City hope that everything will bounce back shortly.
But this is a fairytale outlook. As the world economy goes into a deep slump, all bets will be off. The British economy will be sucked down with the rest.
Governments have tried spending their way out of crises before. But this has always failed. Even quantitative easing was tried over the last decade. Despite these measures, however, we are still now entering a new slump.
Once this slump begins to take hold, nothing will stop it. The laws of capitalism will quickly come into play. No amount of financial tinkering is going to prevent this.
The perfect storm is upon us. The time has come not to bail out capitalism or attempt to patch it up - but to do away with it.