Labour will inherit a mess, but simply appeasing the markets is not an option

World capitalism is sneezing. But it’s only in Britain where the economy is going down with pneumonia. The Tory finance bill is in the Commons in the coming days. They want to blame external forces for our economic problems. But they’ve been in power now for 12 years.

The Covid pandemic and Vladimir Putin’s illegal invasion of Ukraine – two cruel and unexpected crises – have affected every country in the world. Britain’s situation, however, is worse than anyone – and caused by the Conservative’s embrace of a particularly vicious form of capitalism. We never completely shed ourselves of the Thatcher government’s structures: free market, neo-liberal economics. And now it’s come back to bite us all – but especially working people.

The current crisis is the result of 12 years of incoherent, austerity-driven policies, combined with wild zig-zagging economic management. And this is not just party political point-scoring; the OECD has just stated that Britain is facing the worst economic downturn of any advanced economy. Right now, we are the worst performer in the G7 group and in the larger G20 group only Russia, hit by severe sanctions from every side, is weaker.

And let’s be absolutely clear that it is working people who will pay the price for all this. For them, all this is a nightmare made in Downing Street. Living standards have essentially stagnated at best since the bankers’ crash of 2008. The Office of Budget Responsibility (OBR) has warned that living standards will drop by 7% over the next two years, the biggest such fall on record.

Since 2008, we have had austerity from the Tories and the Lib Dems under David Cameron and Nick Clegg, followed by a chaotic Tory Brexit – turning an opportunity into a shambles – then the pandemic, Boris Johnson’s failed ‘levelling up’ and the crazed interlude of Liz Truss’s free-market fundamentalism.

This is the price of trying to salvage the model of deregulated free-for-all, Chicago-style economics that caused the 2008 crisis and should have been put out of its misery then; a lost generation for working-class families will now be hit by the coming recession, likely to last well over a year.

Everything from soaring fuel bills to rising interest rates will impact further on already beleaguered household budgets. Inflation will hit a forty-year high and unemployment will rise to nearly 5%, according to the OBR. And the increased taxes the Tories are now levying (the highest ever recorded) will not be used to improve public services ravaged by the austerity decade. Instead, it will go increasingly to servicing public debt.

Nearly eight million people, many of them far from rich, will end up paying higher rates of tax. They will not see a revived NHS or better schools in return. They are paying to dig the economy out of the Conservative abyss. At the same time, the very rich can continue to exploit the ‘non-dom status’ loophole that allowed Rishi Sunak’s wife to avoid paying tax in Britain on her fortune. And the government has removed the cap on bankers’ bonuses.

The Tories answer mainly to the bond market – the speculators that broke the Truss-Kwarteng clique in a matter of days. The priority of Tories and investors alike are to keep profits flowing. In fact, the private sector is already booming. The profits of energy firms and the banks are epic. But private sector profits in the other sectors of the economy grew by 9.4% in 2022. Few working families can boast as much.

In sum, we have high pay for company executives, huge profits for global companies, declining incomes for middle and low earners – and austerity for public services. This is the background to the strike wave we are now seeing in one industry after another. There was bound to be a fightback. It is not just a result of soaring inflation, but of 15 years of a squeeze on living standards as the bosses have prospered.

Making a change will not be a simple matter. The markets that broke Truss will cut a Labour government no more slack. The speculators’ outlook was well expressed by former German Finance Minister Wolfgang Schauble when he said that “elections should not permit a change in economic policy”. Or, as Alan Greenspan (for many years the head of the US central bank) put it, “policy decisions have been replaced by market forces”.

If we are to offer the British people a genuine alternative to the Tory perspective of unending misery we need to develop a plan to deal with market pressure. Simply capitulating is no solution. An incoming government will inherit a mess – but appeasing the speculators rather than addressing the pressing needs of working people will not work.

Radicalism must be our answer. Democracy demands it. If people get broadly the same policy, whichever party they they vote for, then democratic participation will start to wither on the vine. Or maybe there will be a turn to the hard right. Veteran Financial Times commentator Martin Wolf was correct in 2015 when he said that there was a “loss of confidence in economic and political elites” that the rescue of the banks that caused the 2008 crash allied to the squeeze on real incomes had turned “into a rage”.

The squeeze has only continued, and the rage has barely abated. As we move past the divisions caused by the Brexit debate, voters can be rallied around policies which preserve family living standards, rebuild public services and shift wealth and power away from the elite. The markets might rebel, but a Labour government should have the confidence to tell them that in a democracy the people are the masters.

Working people are fighting back with the current wave of industrial action. A new generation of working-class socialists and Labour leaders will emerge. Indeed they are already doing so. They remind us that socialism is the only real hope for humanity.