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U.K.: recession wrecks economic consensus

After a decade of ideological vacuity, the “I” word — once gleefully derided by New Labour apparatchiks and Tory “modernisers” — has become respectable again in British politics as, finally, the two parties have broken with the controversial market-friendly post-Thatcher consensus in dealing with the economic crisis. Suddenly, the political landscape looks transformed with Labour, at last, sounding like Labour and Tories like Tories — rather than Tweedledum and Tweedledee.

It has been hailed as a new phase in Britain’s political culture. The New Statesman rather breathlessly described it as the most significant development “since 1979 when Margaret Thatcher launched her counter-revolution against the quasi-socialist consensus politics of the long post-war period.” There is a view that the current moves could see Labour “re-converted” to Left-wing ideas while the Tories, who have been trying to reinvent themselves as “compassionate conservatives,” could swing back to the Right.

“The last time we had an unemployment crisis like this … the Tories came out as far more rightwing; Old Labour buckled, the hard left collapsed, and New Labour was born. It was all a long time ago. What now?” asked The Guardian columnist Jackie Ashley.

The current debate is taking place against the backdrop of what the 1990s boom did to British politics. For all its vulgarity, it is acknowledged, the boom did contribute to general prosperity across classes (of course, the rich and the middle classes were the main beneficiaries) and this led both the Labour and the Tories to abandon their traditional ideological positions reducing the entire political discourse to the question: who can manage the boom better?

Promises of alternative political visions were replaced by a race to capture the please-all centre ground. This meant both parties ended up adopting identical positions on many key issues such as regulation of the financial sector, part-privatisation of public services, the Iraq invasion and, immigration. So much so that at the last election a joke often heard was: vote one, get one free.

But the economic crisis has changed all that and the two parties are under pressure from their grassroots activists/voters to return to their “core” principles. The truth is that neither the Labour’s Left-wing nor the Tory Right was ever comfortable with the idea of “Big Tent” politics that forced its leaders to make what it believed were too many ideological compromises. In recent weeks, the grassroots pressure has been so great that Tory leader David Cameron was compelled to withdraw his offer of support to the government’s anti-recession package. In October, in what was portrayed as a grand gesture, Mr. Cameron promised to work with the government in the larger national interest to tackle the crisis. “We’re in this together,” he declared at the party’s annual conference. But within weeks, the gloves were off as the Tory Right asserted itself.

The Labour has responded to the economic crisis in a way that, perhaps, the more ideological Old Labour with its Left-ish instincts might have. There has been a series of government interventions — and more are expected — to regulate the financial sector including effective nationalisation of two major banks — Northern Rock and HBOS. Terms such as “nationalisation,” “takeover” and “bailout,” once banished from the New Labour vocabulary, are now the new mantra with the government pumping billions of pounds into the economy to help failing banks and businesses which (the argument goes), if allowed to go to the wall, would result in millions of jobs being lost — not to mention other knock-on effects on the economy.

In another move that has the Old ideological Labour written all over it, Prime Minister Gordon Brown has decided to tax the rich with the top rate of income tax for people earning more than £150,000 a year proposed to go up after the next general election. The move, aimed at recouping some of the revenue losses on account of tax and other concessions the government is offering to the poor, is a bold break with one of the most controversial New Labour orthodoxies — namely not to annoy the “wealth-creating” super-rich lest they should decide to pack up and take their business to more “friendly” shores.

Last month, the government announced a £20 billion “emergency” anti-recession package declaring that “exceptional times require exceptional action.” The package, described as the biggest shake-up of Labour’s economic policy since it came to power in 1997, included unfunded income tax cuts for modest, middle and low-income groups, a two per cent reduction in VAT to encourage consumers to spend more money to stimulate the economy, and a series of measures to help small businesses, homeowners with mortgages and pensioners. The government also proposed a massive programme of public spending to generate employment all of which will push up government borrowing to a whopping £118 billion next year.

All this is a far cry from the days when, as Chancellor of the Exchequer for 10 years, Mr. Brown acquired a formidable reputation for fiscal prudence by setting extremely rigid borrowing and spending limits — and making sure that the government stuck to them. But that was when the economy was booming, the market was flush with money and the High Street bustled with customers waving their credit cards. Such was his confidence that he had tamed the economy for good that Mr. Brown seldom failed to claim that the era of boom-and-bust associated with the Tories was finally over. And, of course, he took credit for it.

Now, however, faced with a deepening recession that (not surprisingly) he blames on the global economic crisis, he is busy rewriting his old rule book and has embarked on unprecedented levels of public spending to boost the economy. In this, he is said to have been inspired by John Maynard Keynes’ doctrine of active state intervention to fight recession but his critics are not amused. German Finance Minister Peer Steinbruck nearly caused a diplomatic row with his swipe that the “switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking.”

Meanwhile, the Tories have retreated into what one analyst described as their “comfort zone of economic conservatism” (low taxes, small state and limited public spending) after some brave talk from Mr. Cameron. They have attacked the government’s “stimulus package,” accusing it of “borrowing” its way through the recession and “mortgaging” the country. Shadow Chancellor George Osborne has warned that the current levels of borrowing mean that people should expect a “tax bombshell” once the crisis is over as the government would be forced to raise taxes to pay the debt.

The problem is that the Tories have failed to come up with a coherent alternative, except for attacking government plans and making some suggestions about helping small businesses. Even those who have reservations about the government’s strategy feel that the Tories’ response has come across as stuttering and confused, and that they are behaving like a “do-nothing party.” Opinion polls show a significant support for government policy with Mr. Brown seen by a majority of voters as a safer pair of hands to see the country through the crisis than Mr. Cameron.

Indeed, the recession (or rather the government’s seemingly robust response to it) has transformed Labour’s political fortunes. A party which only a few months ago was in the dumps and nearly written off in terms of its prospects at the next election has suddenly started — and with good reason — to nurse ambitions of a fourth term in office. The party’s self-belief is back and there is a new sense of optimism that it can pull it off. It is the Tories — once seen as a putative government-in-waiting — who are now under pressure. There is speculation that if the polls continue to be good for Labour and the recession does not get out of control, Mr. Brown may be tempted to call a general election sometime next year although technically his government’s mandate does not run out until 2010.

So far, so good. But the big question, to borrow a favourite term of Indian television anchors, is: will Mr Brown’s “stimulus” package work? If it doesn’t, Labour is doomed. One view — and it is reflected in some opinion polls — is that even if the package works and the fog of recession lifts by 2010, Labour could still lose as after 13 years of Labour rule voters would want a change. They would thank Mr. Brown for seeing them through difficult times and take a gamble on Mr. Cameron!

Nevertheless, what the recession has done is to break the myth that in an age of “Gucci capitalism” there is no place for ideology in politics. In their own way, both Labour and Tories have shown that there is.

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