Sunday, 30 January 2022

The Myth of Tory Economic Competance

There’s a well entrenched assumption in British political culture that the Labour Party is spendthrift and the economy is not "safe" in their hands, whereas the Tories are financially prudent and can be relied upon to steer a steady economic course.

This idea is based on the easy presumption, in which there is some truth, that the Labour Party places priority on decent public services over low taxes whereas the Tories will give priority to keeping taxation levels as low as possible and urge the public services to "improve" themselves by being more efficient.  

It is an easy story to put across, Conservative politicians proclaim it solemnly and their sycophantic press supports them with gusto.The economic history of the post war years tells a different story.

After 1945 our governments tried to maintain the £ sterling as a world reserve currency.  This led to what were called "stop-go policies.”  When efforts were made to modernise and stimulate the economy by private and public investment price levels would rise, imports would be sucked in and exports become more difficult to sell. The balance of external payments would go into deficit  and the result would be pressure on the value of the £. The government would then  be forced to organise a "stop" to the renewal of the economy by raising taxes and cutting expenditure, until "confidence" in the £ was restored and the economy was allowed to "go" again. 

This "stop-go" cycle followed a regular rhythm.

Happily, the possibility salvation came in the 1970s with the discovery of oil in the North Sea.  When this came "on stream", rather than having to import oil (a major drain on the balance of payment) we became a net exporter. Here at last was the necessary breathing space and opportunity to build the modern economy and high grade civil society which had so often been frustrated in the past.

Unfortunately, in the same period neo-liberal economics became fashionable.  Margaret Thatcher became prime minister in 1979 and the bonanza of North Sea oil was squandered on financing a cruelly high level of unemployment rather than building the Sovereign Wealth Fund that other beneficiaries created. 

The Thatcher government and its Conservative successors also introduced the policy of "privatisation": selling off publicly-owned  assets ranging from the public utilities (electricity, gas and water supplies) to the railways in order to "promote efficiency" and, incidentally, to finance tax cuts.  Former Conservative Prime Minister Harold Macmillan called it "selling off the family silver."

 Among the privatisations was the selling off of public housing to tenants at discount prices while not permitting local councils to retain the money and use it to build replacement houses.  The aim was to create a "property owning democracy,"  with the property owners more likely to vote Tory than if they had remained tenants. That aspect of the policy has been a failure, as almost half (40%) of the former council houses are now owned by "buy to let" private landlords charging extortionate rents, double what the councils were allowed to charge

A knock-on effect of this policy is the huge rise in private house prices.  In my younger days the average mortgage needed to buy a house was about twice the annual average wage.  Now it is about six times the average wage and beyond the reach of most young people without the aid of the "bank of mum and dad." 

An off-shoot of the policy of selling off public housing  has just come to light. In 1996 present TV Star Michael Portillo,  then Defence Secretary in John Major's government, sold off 57 000 homes belong to the MoD but retained the responsibility for their maintenance.  The nett loss to the public purse on this bizarre arrangement is estimated so far to be between £2.2bn* and £4.2bn*

The financial deregulation (the Big Bang) introduced in the Thatcher years  led directly to recklessness in the banking and money market sectors and the financial crash of 2008/9.  Public funds  were used to bail out the banks, and the Tories, when they returned to power in 2010, used the resulting internal deficit in the public accounts as an excuse  to run the period of public sector austerity. This has  led to a much weakened public sector, most notably in the running down of spare capacity in the NHS, which has made it incapable of maintaining many of its normal functions while dealing with the pandemic.

 The financial irresponsibility of the Johnson Government  in dealing with the pandemic has been and continues to be scandalous.  Highlights, or rather lowlights, have been the £37billion* spent on the allegedly “World Beating” test and trace system which failed miserably.  Other contracts were given via a VIP lane, exclusive to those with contacts to Tory MPs and Peers, for masks, PPE and other equipment and services, to companies with no or little experience of the product and which often failed to deliver.

 The money spent on Chancellor Rishi Sunak’s  “eat out to help out” scheme, which probably helped to spread the virus, pales into insignificance compared with the irresponsibility revealed by Lord Agnew’s resignation  last week, in which, among other things, “Business Bounce Back Loans” to help companies remain solvent during lockdowns,  were given out  without adequate checks. More than 1000 which received one were not even trading when Covid struck.  There were multiple applications from the same addresses.  One of the purposes of the scheme was to maintain employment. 1 500 loans to firms were made.  There are only 1 400 private sector firms in the UK with employees.  The total to be written off in fraudulent claims is estimated at £4.3 billion*

In summary, the economic and financial errors made by successive Conservative governments, particularly during and since the Thatcher era are:

1.     Squandering of the income from North Sea Oil on financing a high level of unemployment rather than building up a Sovereign Wealth Fund.

2.    Privatisation of public assets, particularly public housing at knock-down prices and without replacement, helping to lead  to the present housing crisis

3.    Financial deregulation leading to the 2008/9 financial crash.

4.    The post-2010 austerity regime which weakened the public services, especially the NHS

5.    Reckless financial irresponsibility, especially that which favoured their supporters,  in dealing with the COVID pandemic

And I haven’t even mentioned Brexit.

*      Just to put these billions into perspective, the amount re-announced this weekend which is going to transform 20 (sic) cities and towns as part of the “levelling up” programme (presumably in order to distract us from “Partygate) is a mere $1.5 billion



  1. I agree with most of what you say but not about running a Sovereign Wealth Fund. Running a SWF is a way of exporting capital to lower the exchange rate. I don't think you'll find an example of anyone running one who doesn't, or didn't, have this as their motivation.

  2. Thanks for your comment. I've just read up a little bit on Google and realise there are several sides to the SWF debate. What I had in mind was something similar to the purpose of the Norwegian fund, which the Norges Bank defines as follows:

    The aim of the oil fund is to ensure responsible and long-term management of revenue from Norway’s oil and gas resources, so that this wealth benefits both current and future generations.