Labour announces George Osborne tribute act with bogus rationale for austerity

Chancellor Rachel Reeves is set to announce billions in austerity cuts after a performative ‘revelation’ that there’s a deficit in public finances. Reeves claimed she is “genuinely shocked” by something the Institute for Fiscal Studies (IFS) already informed people of back in March. The IFS said both the Labour Party and the Tories were engaged in a “conspiracy of silence” over the £20bn ‘black hole’. But is more austerity the answer?

Hold on, post-World War II saw a huge public programme

Labour says that the UK’s finances are in their worst position since WWII. But back then, Clement Attlee’s Labour government of 1945-51 introduced a vast public programme:

The Tories left Britain’s finances in their worst state since the Second World War.

This Labour Government will take tough decisions to deliver the long-term solutions that will make you better off. pic.twitter.com/YDO4CyDLbH

— The Labour Party (@UKLabour) July 29, 2024

Attlee brought about 20% of the UK economy into public ownership. That included essentials like electricity utilities, coal mines, and gas, along with natural monopolies like the railways. Keir Starmer’s Labour has plans to re-nationalise the eight railway operators. But that does not include the literal trains themselves, which we will still rent from rolling stock companies, losing us £200m a year in shareholder rental profit. And Starmer abandoned his leadership pledges to re-nationalise energy utilities and water.

Rather than costing us money, nationalisation of essentials saves us money through removing shareholder profit from utilities that are the backbone of the rest of the economy. So an austerity lens does not make sense here.

Attlee also oversaw the building of 1,016,349 new homes, of which 806,857 were council houses. Starmer’s Labour manifesto committed to facilitating the building of 1.5m new homes, a number not mentioned in the King’s Speech. But Reeves previously ruled out spending any public money here, meaning the government will not provide homes at a more affordable price to the additional benefit of public finances, or at cost price for the resident. Again, the austerity approach doesn’t make sense.

That’s before one gets to Attlee’s flagship achievement – the creation of the NHS, rolling out publicly owned and publicly provided healthcare free at the point of use. The Attlee government also brought in the National Insurance Act of 1946, which provided unemployment and pensions benefits.

Labour austerity approach in healthcare will not work

Chancellor Reeves plans to halt the building of new hospitals and sell off national assets. Rather than invest, the party will continue the Tory policy of expanding private sector provision of NHS services. They say this is an attempt to address the backlog of those waiting for treatment. But the expansion of private sector healthcare within the NHS, as well as introducing for-profit costs, will only have a “limited impact” in solving the waiting lists, according to a report from the Health Foundation.

That means the private provision will fail to unlock the £73bn the Institute for Public Policy Research found the economy would gain over five years if the government addresses the backlog. That’s because of all the sick people it could get back to economic activity. Again, austerity and privatisation simply doesn’t add up.

In response to Labour’s drive to more austerity, macroeconomist Ann Pettifor posted:

This highly ‘performative’ debate about the £20bn ‘black hole’ is based on the IFS’s ‘household economics’… It’s embarrassing and has nothing to do with economics – any more than George Osborne’s austerity was economics. It was politics.

— Ann Pettifor (@AnnPettifor) July 26, 2024