The reaction of many on the left to the big spending rises in yesterday’s Budget is that they show that Labour has “won the argument” for higher public spending. This is partly true.
On current plans (pdf), total public spending will rise to 40.8% of GDP by 2024-25*. That’s a bigger share than Labour spent between 1997 and 2008. The Tories’ justification for this is correct: low borrowing costs make it sensible to borrow to support economic growth and improve our infrastructure. But this is exactly what most on the left – as well as mainstream macroeconomists – were saying years ago. In this sense, the left has won.
In another sense, though, this is awkward for the left. It tells us that the Tories can increase spending at least as much as Labour can. One reason for this is the old cliché “give a man a reputation as an early riser and he can sleep til noon.” The Tories can raise spending a lot for the same reason that Nixon could pursue détente. Their (wholly unjustified) reputation with the media and voters for sound stewardship of the public finances means they can better get away with raising spending. Whereas John McDonnell’s promise of £500bn of infrastructure spending was portrayed as reckless, Sunak’s £600bn is “the road to riches” and a “bold battle plan”. Yes it’s unfair, and appalling double standards. But this is the world we live in.
if we identify leftism with higher public spending, the Tories do leftism better than Labour.
But of course, we should not identify the two. There are still at least five big differences between the Tories and the left:
1. Day-to-day spending. Although Sunak has stopped cutting, he's not reversing Osborne's cuts, as Simon points out. That increased share of spending in GDP owes a lot to more spending on the NHS and pensions. This suggests that plenty of other areas of spending, such as by local authorities, will remain under pressure.
2. The environment. Freezing fuel duty and building more roads will give us more cars and pollution. Sunak might have been converted to fiscal common sense, but this Budget was not the Green New Deal.
3. Income equality. This Budget fell way short here. As Aditya says, it failed to raise sick pay or extend it to gig workers. And as the Resolution Foundation says in its excellent assessment (pdf), “this Budget was silent on arresting ongoing welfare cuts” – cuts that will increase income inequality. Yes, Sunak promised cuts in NICs and a higher minimum wage. But as the IFS points out, these are not especially egalitarian:
Only 8% of the gains from the NICs cut would accrue to the poorest fifth of working households. And only 22% of minimum wage workers live in the poorest fifth of all households.
4. Economic institutions. There is, though, more to inequality than incomes. Genuine equality requires more equality of power, and breaking the dominance of the ultra-rich (pdf). Which requires institutional change. As James Meadway has said, this means that “ownership and control of productive resources… should be decentralised, democratic, and collective as far as possible.” Worker ownership should be a key part of any leftist platform.
5. Productivity. The Tories’ conversion to the idea that infrastructure spending can raise productivity is welcome. But we need more than this. The OBR estimates that the rises in government investment spending will, if sustained, eventually raise productivity by 2.5%. But this is only a fraction of the productivity shortfall we’ve suffered since the crisis: if productivity had grown as much since 2007 as it did in the 40 years up to then, it would now be 22 per cent higher than it actually is. Boosting productivity requires far more than public spending. Whilst some of these things should be compatible with Tory sentiments – such as tougher competition policy – others might not be, as such as shifting taxes onto landlords, pursuing a softer Brexit** or fighting workplace inequality and cronyism.
So yes, the left has won the argument on public spending. But there is much more to leftist economics than spending. And these arguments are far from won.
* My eyeball econometrics suggests there are upward trends in my chart. Maybe Wagner’s law still holds.
** The OBR says we have so far suffered only one-third of the total adverse effect of Brexit on productivity.