Starmer and Reeves’ commitment to orthodox capitalist theory will not bring growth, but rather an economic death-spiral, argues Dominic Alexander

So, a Labour government is prepared to push another 250,000 people into poverty by 2029-30, according to the Department for Work and Pensions’ own figures. The welfare cuts will leave 3.2 million families worse off, and a study in the British Medical Journal warns of a further decline in the health of the country. Based on the impact of austerity over the last fourteen years, this renewed onslaught of austerity directed against the most vulnerable members of society will mean a still further rise in premature deaths.

Even apart from this government’s willingness to commit social murder, the cuts aren’t going to save the money they want to save. Restrictions on Pip payments will likely drive disabled people out of work and onto benefits, and will certainly not succeed in forcing people into work. The loss of benefits income will certainly drive more people not just into relative poverty, but outright destitution. These measures, notably the cut to and then freezing of the universal credit health element, will hardly help the health of the working population, which, unlike for most of the G7, has not recovered from the pandemic.

There is apparently going to be £1bn in funds for helping people into work, but this is just a redeployment from the £4.8bn worth of cuts, so is desperately unlikely to make up for what is lost, even if we knew the details of upon what it will be spent. When Reeves in her press conference claimed that she is ‘confident that the changes that we are making and the support that we’re providing to get people into work, will result in more people having fulfilling careers paying decent wages’, this is a direct denial of the figures presented by the government’s own Department for Work and Pensions. This suggests a level of delusion on Reeves’ part about the nature of the impact of austerity measures since 2011.

Among the various bits of smoke and mirrors in the presentation of the impact of the autumn budget is the claim that only top 10% of earners will be worse off by 2028-9. This is based on the assumption that the rest of us benefit in kind from public services. If the NHS is burdened still further by the increase in poverty, which is a certainty, and public services remain in crisis, then this is unlikely to be right.

There are, of course, any number of measures the government could take to raise more money and avoid cuts, but they would involve taxing the rich. At the very least, equalising capital gains tax with income tax would raise £14bn, and probably not hurt private investment. Even if it did, Britain has suffered from a huge chronic shortfall in private investment for decades, so we wouldn’t be losing anything much from there anyway.

Where is growth coming from?

The big bet is that growth will improve after this year. The Office of Budgetary Responsibility claims it will, but this again is a matter of assumptions about the nature of growth, and what will drive it. Government policy remains focused around making investment cheaper and easier for private capital, for example by easing planning regulations. In housing, this is unlikely to result in more ‘affordable’ homes, since there is no sign of any concerted effort to create more council housing. The benefits are likely to accrue to the house-building industry, which is notorious for failing to provide the ‘affordable’ housing it promises. In sum, the government is performing a watered-down version of the same ‘supply-side’ economics in which the hapless Liz Truss indulged. The results are unlikely to be as immediately catastrophic, but the long-term impact will not solve Britain’s infrastructure and investment problems. 

Of course, the other new hope for growth comes from military spending, which has partly been stolen from the international aid budget, and partly raised by fudging fiscal rules. It is counted as investment, for which the government allows itself to borrow. The £2.2bn increase in defence spending, only the beginning of a massive increase to come to 2.5% of GDP, is not going to act as any kind of military Keynesian stimulus to growth. Firstly, it is well known that defence spending provides fewer jobs, relative to money invested, than would the equivalent spent on public services. In any case it is likely that much of the funding will end up in the hands of the US defence industry, which has the greater capacity, rather than fuelling growth in British industry.

The sadistic benefit cuts do not just offset the increase in defence spending, but are meant to reassure the bond markets that the government is ‘fiscally responsible’. For the capital markets that fund government debt spending, apparently, a commitment to slash the standard of living of your country’s workforce, even to the point of a rise in the death rate, is necessary to keep them willing to continue to lend money to the safest possible creditor that exists. Reeves and Starmer may be genuinely too frightened by the Truss debacle to test this, or at least to mount an argument that investment through borrowing will result in a better economy than the doom-loop of austerity. More likely, they are actually committed to the strictest of neoliberal doctrines. The result  also seems to have kicked any commitments to dealing with the climate crisis into the long grass.

There does seem to be an emerging consensus that the increases in defence spending require a dismantling of the welfare state. Thus several influential commentators have written variations on the theme that ‘Europe must trim its welfare state to build a warfare state. There is no way of defending the continent without cuts to social spending.’ The problem here is not just the entirely false proposition that our economies need to move onto a war footing to confront Russia, but that the dismantling what remains of the welfare state to pay for an entirely avoidable war is not going to work in capitalist terms either.

We are still in the doldrums from the crash of 2008, since when growth rates in Western economies in general have not recovered. The response to this long depression has been austerity, but that has not worked to rejuvenate either investment or profit rates, so now capital hawks want to go even further towards reducing the overheads on capital profitability by shrinking the state. The problem is that capital does need labour in order to realise profit from its investments, and what it is cutting when it takes the axe to public spending is the social reproduction of labour. This has now reached dangerous proportions, with education, the NHS and housing all deep in crisis.

As the workforce declines in productivity, due to ill-health, bad housing, failing public transport, and collapsing education systems, it becomes ever more difficult for capital to invest profitably. The creaking state of infrastructure is also a deadly problem for capital, with the fire which closed Heathrow last week just another straw in the wind of what happens when there is inadequate infrastructure investment. Austerity has brought us here, and if Labour are determined to stick to that policy, it stands no chance of getting the magic growth tree from sprouting again.

The Labour government was elected on the basis of ‘change’, but they have stuck rigidly close to a needlessly debilitating version of capitalist orthodoxy, showing nothing but cowardice when it comes to arguing for any kind of different approach to the economy. If capitalism can provide no solution but an accelerating programme of social murder and ecocide, then the anti-war and anti-austerity movements need to organise to demand an entirely different economic model.