
Daniel Hannan: The electorate’s selective amnesia is what will doom the Government
Lord Hannan of Kingsclere was a Conservative MEP from 1999 to 2020 and is now President of the Institute for Free Trade.
The Conservatives had pushed up spending. Prices had risen, leading to public sector strikes. A crisis was inevitable. When it became clear that Labour had no serious plan for growth, the markets turned. Sterling plummeted and the price of debt soared. The Chancellor was forced to rush from Heathrow to the Treasury.
That chancellor was Denis Healey, and the year was 1976. What followed determined how Labour has thought about economic policy ever since.
The 1976 crash, like the current gilt strike, made spending cuts necessary. And not what Leftist politicians mean by cuts – i.e., a smaller than scheduled increase – but actual real-terms reductions. In 1977, the NHS budget shrank – something that never happened again until 2022, when the impact of the pandemic wore off.
“For too long this country – all of us, yes, this Conference too – has been ready to settle for borrowing money abroad to maintain our standards of life,” Jim Callaghan told the 1976 Labour conference. “We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists.”
He was right. But he lost the next election to Margaret Thatcher, who endorsed his diagnosis, but was prepared to prescribe a cure proportionate to the severity of the disease.
The two wings of the Labour Party drew different lessons from the humiliation of 1976. The Right concluded that the party must not lose its economic reputation by allowing spending to get out of control; the Left that Labour must not cut spending, since doing so opened the door to the Tories.
Tony Blair was the supreme culmination of the former tendency. Although he moved budgets about a fair bit, he did so within tight overall limits. Not until Gordon Brown’s premiership did money start to flow stupidly.
Today, the latter tendency is in the ascendant. Labour MPs know that their party won with barely a third of the popular vote. That hard core is made up largely of people whose income depends on the state, whether as benefits claimants or government employees. Start cutting spending, they warn, and even that remaining core will desert.
After 14 years of attributing every misfortune to “Tory austerity” (a line they kept trotting out even when overall budgets rose) Labour would lose all credibility.
From a narrowly tactical point of view, these are reasonable points. But the alternative is worse. The crisis has struck just six months into Labour’s term. Unless Rachel Reeves reassures the markets by cutting spending, she will condemn the country to economic ruin, and her party to electoral oblivion.
I feel almost sorry for her. She is trapped by what the FT columnist Janan Ganesh calls the Carter Rule: “rich democracies need a crisis in order to change”.
Jimmy Carter could have cut spending before the 1979 breakdown. Healey might have done so before the 1976 IMF bailout. But public opinion was not yet there. Only once the crisis had brought things to a head were voters ready for change. And by then, it was too late for the governing party.
Reeves is in a similar place today. As this column has been mournfully pointing out for five years, lockdown habituated voters to handouts and convinced commentators that there really was a magic money tree. The scale of the Tory defeat last year owed something to the electorate’s selective amnesia, its refusal to connect rises in prices and taxes to the policy of paying people to stay home – a policy which 93 per cent of people had backed.
The same selective amnesia will finish Labour. Those voters who had convinced themselves that there was plenty of money really, and that only Tory sadism was preventing it being disbursed, are turning furiously on Starmer.
There are no good options for Labour from here. The party won by promising growth, financial stability ,and no tax rises other than VAT on schools, tighter rules for non-doms, and a retrospective levy on energy firms. Little wonder there is such anger at the Chancellor.
Reeves could salvage her reputation, and stave off the worst for her party, by making tough choices rather than just talking about them.
In 1931 Philip Snowden, the Labour chancellor, responded to the Great Recession by returning public spending to where it had been three years earlier. Everyone, from admirals to recipients of unemployment benefit, took a cut. Snowden’s argument was that, since life had been perfectly bearable three years earlier, such cuts could hardly be called inhumane.
Imagine if we went back to the spending levels of February 2020. Or, to be ambitious, to the spending levels of Tony Blair’s first term. In those days, the public sector represented around 34 per cent of GDP (today it is 45), and we enjoyed commensurately strong growth. That such numbers are now unthinkable is Labour’s tragedy. Sadly, it is Britain’s, too.
This article (Daniel Hannan: The electorate’s selective amnesia is what will doom the Government) was created and published by Conservative Home and is republished here under “Fair Use” with attribution to the author Daniel Hannan
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