In the month​ leading up to the Chris Pincher scandal, which finally did for Boris Johnson, there was a flurry of bleak news about the state and future of the British economy. Inflation hit a forty-year high of 9.1 per cent, and the Bank of England announced its fifth interest rate rise since December, to 1.25 per cent. At the end of June, Andrew Bailey, the governor of the bank, admitted that inflation in the UK – triggered by a combination of war in Ukraine and supply-chain bottlenecks in the wake of Covid lockdowns – is likely to endure for longer than in the United States or mainland Europe.

At the end of June, data emerged from the European Commission which appeared to confirm the worst fears concerning the impact of Brexit on trade: exports from the UK to the EU (still the UK’s largest trading partner) in 2021 were 14 per cent lower than in 2020, and 25 per cent lower than in 2019. The OECD predicted that Britain would enter recession next year, and said it had the second worst outlook among the G20 nations, just above Russia, which is currently the target of all-out financial war.

Then there was surreal news from the housing market, the perennial joker of British capitalism. The Halifax announced that June had seen the fastest monthly rise in house prices since 2007, and the twelve months to June the largest annual rise since 2004. In the fantastical political bubble administered by the right-wing press, this counts as excellent news. Given that homeowners are on average older, more likely to read newspapers and more likely to vote Tory, it certainly helps explain the eerie sense pervading British public life that the storm has not yet arrived, although for many people it certainly has.

The housing market won’t be able to buck the influence of rising interest rates, slumping real wages and looming recession for ever, but in the short term, here was evidence that the ‘cost of living’ crisis, manifest in spiralling energy and food costs, isn’t afflicting everybody. For participants in the housing market (many of whom also built up their savings during lockdown), inflation is still comparatively innocuous, while interest rates remain low by historical standards. It’s people in rented homes, living wholly off wages and benefits, who are the principal victims of this crisis, which has no clear end in sight. Half the population has already cut back on food shopping, while schools, care homes, leisure centres and other public services face impossible choices in allocating budgets that are declining rapidly in real terms. Prospects for the winter are truly grim, with a further planned increase in energy prices coinciding with the arrival of cold weather, and the continuing threat of Covid worsening the situation in an already clogged-up NHS. It is a telling reflection on the precarity of Britain’s current social and economic model (not to mention the precarity of our relationship to the climate) that the main thing holding back disaster right now is summer weather.

Some of the factors in this crisis are beyond the control of government policy. To the extent that inflation is being driven by the war in Ukraine and the effect of Covid-19 on global supply chains, there isn’t all that much the Bank of England or anyone else can do about it. Raising interest rates acts as a signal that the bank still takes its responsibilities seriously (it does, after all, have an official mandate to pursue an inflation target of 2 per cent), but while interest rate rises may have the effect of depressing economic activity – and even deflating the housing market – there’s a limit to the influence they can have on energy and food prices, when there are real material and geopolitical reasons that those prices are high. There are no grounds for believing those forces are about to alter, and therefore no reason to assume that energy in particular will suddenly become affordable again. Modern central banks understand their role in terms of mass psychology: they seek to influence expectations of the future so that markets come to believe that prices will remain stable, until, eventually, that’s what happens. But the current inflation crisis derives from the state of the world, not from our psychological expectations about it.

Other factors are very much within the control of government. Brexit, which has been the focus of the Conservative government for the past six years, and a pipedream of the party’s Thatcherite wing for the past thirty, is making Britain measurably poorer. Growth in business investment in the UK, which before the 2016 referendum roughly tracked the rate of other G7 economies, has stagnated ever since, and hasn’t recovered from the shock of Covid despite an unprecedentedly extended period of cheap credit, which in principle should have made investment more attractive, not less. This under-investment has led to a drop in productivity, and a loss of prosperity overall.

A longer-term view of Britain’s economic malaise is presented in Stagnation Nation, a new report by the Resolution Foundation think tank.* Two headline trends are identified, from which much else follows. First, since the financial crisis of 2008 productivity has grown by just 0.4 per cent per year, compared to an average of 0.9 per cent in the 25 richest OECD countries. Partly as a consequence of this, average wages simply stopped increasing, one of the strangest and most socially corrosive developments in the history of British capitalism. The report shows that between 1970 and 2007, wages typically went up by 33 per cent every decade. Since then, they haven’t grown at all. One of the most startling statistics in the report is that there are now eight million younger workers who have never experienced an economy that delivers a rising standard of living through wages alone.

The second overarching problem identified in the report is that Britain has become an unusually unequal society over the past forty years, both in income and in wealth. A low-income household in Britain is typically £3800 a year worse off than the equivalent one in France, something that makes a world of difference to the way this new inflationary crisis is experienced. Meanwhile, total household wealth (what people own, rather than what they make from wages) rose from three times GDP in the late 1980s to nearly eight times at the start of the pandemic, and then shot up further thanks to the emergency monetary interventions of the Bank of England in 2020-21. But many people have no wealth at all. The contribution of ‘investment income’ (returns on shares, property, bonds etc, as distinct from wages) to Britain’s deep regional inequality has doubled since 1997.

The picture painted by Stagnation Nation is familiar from the work of many political economists, such as Brett Christophers and Jodi Dean, who have tracked the drift of contemporary capitalism towards ‘rentierism’ and even ‘neo-feudalism’. What these terms suggest is that economies like Britain’s have effectively abandoned the pursuit of prosperity through the traditional capitalist practices of investment in technology, R&D, skills and entrepreneurship (all of which offer a reason and a means for businesses to increase wages), and descended instead into passive speculation on unproductive assets, above all housing, but extending to such Ponzi schemes as NFTs and other cryptocurrencies. This tendency can be dated back to the explosion of financial services in the late 1980s, but has become acute in the years since the 2008 financial crisis, when – for reasons that aren’t entirely clear – an abundance of very cheap credit, which could have been used for the creation of new firms, new production methods, whole new business models, was instead used to inflate the value of existing assets even further. One reason that highly unequal, low-productivity economies tend towards stagnation is that wealth management strategies of the sort pursued by the super-rich become largely defensive, aimed at preserving and exploiting existing assets, rather than risk-taking. The Resolution Foundation is quite praising of recent government efforts to increase the rate of investment in the public sector, but despairs at the extraordinarily low investment in the private sector. To put it bluntly, Britain’s capitalist class has effectively given up on the future. It’s against this economic backdrop that the nostalgia fest of the Tory leadership election is taking place.

As​ Boris Johnson limped towards his final prime ministerial disgrace, his supporters in the Conservative Party and the press believed they had hit on a strategy for weathering the mounting economic gloom. With inflation now reducing the value of every pound by 9 per cent a year, it was no surprise to see unions representing transport workers, refuse collectors, teachers and telecom engineers, among others, begin to ballot their members to strike for higher pay. The political right immediately responded with oddly euphoric analogies to the 1970s. ‘Labour Isn’t Working!’ one Daily Mail front page yelled. ‘We regret to announce that this country is returning to the 1970s,’ the front page of the Sun said the same week.

The aim in conjuring up this memory (at least among the over-sixties) was quite clear: if this is a replay of the 1970s, then the unions must be responsible for a large part of the economic disorder, so what’s needed is some strong, Thatcherite figure to come along and take charge. Not only that, but Labour – which Johnson and his supporters have gone to comical lengths to identify as the ultimate instigator of any strike action – would be responsible too. Cultivating an exaggerated sense of conflict and chaos holds out the prospect of far greater political rewards than facing up to the stagnation described by the Resolution Foundation. Chaos calls for an authority figure to suppress it on behalf of the silent majority. Stagnation calls for … what exactly?

Stuart Hall identified this political tactic at the outset, in his 1979 essay ‘The Great Moving Right Show’, which defined ‘Thatcherism’ before Thatcher had even taken power. Hall diagnosed a new variant of ‘authoritarian populism’, which responded to the inflationary crisis of the 1970s (which successive Conservative and Labour governments had failed to alleviate) by framing it in ways that melded economic theory with a moral and cultural diagnosis of national decline. Panics over progressive ideas in education, the breakdown of law and order, family breakdown and excessive reliance on welfare were all stirred up as a means of authorising a new economic programme. A reassertion of traditional authority and a clamping down on personal freedoms were integral to the Thatcherite vision of a restored British capitalism. Renewed respect for private property, enterprise and hard work would serve to fix all of these social and economic crises at once.

Echoes of this ‘authoritarian populism’ can be discerned in the Johnson administration’s moves to limit the right to protest, police the behaviour of student unions, deport refugees to Rwanda and pick fights with the judiciary. Some moral panics have been imported directly from the US, including those surrounding the teaching of critical race theory in schools and ‘cultural Marxism’ in universities. The former attorney general and sometime leadership candidate Suella Braverman has pushed nationalistic, illiberal rhetoric the furthest, arguing that Britain should pull out of the European Convention on Human Rights (Belarus and Russia are currently the only non-signatories) and put its own sovereignty ahead of whatever international agreements it might have signed up to in the past. Kemi Badenoch, who briefly looked as if she might get to represent the Tories’ Brexiter wing in the final run-off, has foregrounded a ‘war on woke’.

Controversies over gender identity, which has become a thorny issue for the Labour Party (and could become thornier still in an election campaign), have been seized on by candidates for Johnson’s job as a means of demonstrating their wholesome commitment to Britain. Rishi Sunak and Penny Mordaunt both criticised ‘gender neutral’ language at their campaign launches, while the organisers of Badenoch’s launch were reduced to sellotaping handwritten notes marked ‘Men’ and ‘Ladies’ onto unmarked toilet cubicle doors. A willingness to recite key phrases involving words like ‘woman’ and ‘penis’ has now joined a stated willingness to deploy nuclear weapons as a necessary credential for national leadership, at least in the eyes of much of the media. Little is revealed by such rhetorical rituals, beyond a hunger for power.

Where economic policy has featured in the Tory leadership contest so far, the focus has tended to be on levels of taxation, which the right of the party has long considered far too high. While most economists would argue that a shortage of economic growth over many years creates the need for higher taxes (how else do you fund the public services on which an ageing population depends?), the Thatcherite revivalists argue that it is high taxation that leads to low economic growth – the idea being that entrepreneurs are sitting idly at home, refusing to ‘unleash’ investment in new firms and technologies because they’re too resentful towards the taxman. Liz Truss, so desperate to draw comparisons with Thatcher that she appeared to have dressed up as her idol for the Channel 4 leadership debate, has described government targets for housebuilding as ‘Stalinist’. Rishi Sunak, meanwhile, has internalised the banker’s mentality, in which the state’s first priority must be to balance its books.

There have also been signs of hostility from the right of the Conservative Party towards the Bank of England, with Truss blaming it for failing to reduce inflation, and Braverman calling somewhat cryptically for a ‘more binding inflation target’. This too is a revival of a Thatcherite motif. Thatcher’s chief tactic against inflation between 1979 and 1982 was to push up interest rates, which triggered such a deep recession and such high unemployment that inflation was eventually brought under control. If inflation can be pegged as the fault of the bank’s Monetary Policy Committee, this provides another enemy, along with the resurgent trade unions, for the neo-Thatcherites to confront. And as with Brexit, the fact that the bank is now independent (unlike in Thatcher’s day) allows resentment to be nurtured that the British economy is being unfairly held back by a bunch of unelected technocrats.

Britain is not experiencing an economic rerun of the 1970s. Long-run economic growth is lower, inequality far higher and the trade unions less powerful. Inflation, as yet, has nothing to do with wages rising too fast (if only). Where there are signs of chaos to rival the ‘winter of discontent’ – the twenty-mile queues of trucks waiting to get through the port of Dover, the six-hour waits at A&E, the missed holidays because of delays with passport applications – this has nothing to do with left-wing insurrection, and everything to do with the Johnson administration’s own policy choices and failings. The invocation of the 1970s is less significant for what it captures about reality than for what it tells us about the exhausted, wishful thinking of the right. Part of Hall’s aim in attempting to understand ‘Thatcherism’ was to shake the left out of its complacency and to highlight what was new and effective about this emergent political ideology. Some on the left never forgave him, but the aim of such a Gramscian analysis isn’t to credit one’s opponents with being correct; it is to recognise how a certain representation of economy and society succeeds in making sense of an otherwise bewildering, uncertain world. Thatcherism did this. A pantomime re-enactment of Thatcherism, in a palpably different social and economic age, offers nothing beyond the occasional set-piece to be circulated on social media.

The term ‘culture war’ has become a commonplace in British politics over the past four years, and especially since Johnson became prime minister. Much of what it refers to can be covered by the question ‘Who holds the authority to narrate Britain’s identity and history – universities or newspapers?’ The conflict between the two has been supercharged by the fact that columnists and academics (along with their respective sympathisers) now frequently inhabit the same platforms, Twitter in particular. It also has an intergenerational dimension, partly as a result of the fact that newspapers are now largely read by the over-fifties, while young people are far more likely to have gone to university. For a host of reasons (not least that its current leader is a journalist), the Tory Party has effectively become the political arm of the press, while routinely complaining about the cultural influence of universities.

It is hardly a surprise to see candidates for the Conservative leadership demonstrating loyalty to their newspaper allies in this ‘war’. ‘Cultural’ issues soak up vast amounts of attention online, while Johnson has made an art form of stoking fresh controversies as a means of distraction, or purely for the hell of it. One of the first hustings in the leadership contest was held by the Conservative Common Sense Group, at which candidates were grilled about the place of statues in society and similar issues. All of this suggests a bad miscalculation over the weight most voters attach to campus politics and to the opinions of newspapers. The Conservative Party has become so closely entangled with a handful of newspapers, owned by three or four billionaires, that it is unable to see how eccentric and often irrelevant the concerns of these papers really are.

Pronouncements about Stalinism, gender identity, wokeness and Brexit are useful as oaths of loyalty, but they do nothing to build an electoral coalition or hegemony of the sort Hall identified in Thatcherism. The press (especially the Financial Times) was an important component in the assembly of Thatcherism, but so were think tanks and academic economists. The current Conservative Party is an intellectual vacuum, hovering around the epistemological void of Brexit, a policy whose consequences must never be named or known. To be fair, the leadership candidates haven’t yet had to worry about wider electoral strategy, since the next prime minister will be decided by a combination of Tory MPs and about 170,000 party members. But the winner will eventually collide with the reality of economic stagnation and mounting pressures on the NHS. Their electoral chances against Labour will probably be affected by the depressing fact that no frontline Westminster politician is very popular (the net approval ratings for Keir Starmer, like those for all eight of the original Tory leadership candidates, are negative), and trust in politicians generally remains low. Johnson has generated a lot of noise and outrage during his three and a bit years in Downing Street and tested some constitutional norms to the limit, but the deeper sense of hopelessness that pervades British democracy predated his premiership by many years. The next Tory leader, whether Sunak or Truss, will no doubt resort to many of the same tactics as Johnson, creating further mistrust and alienation, when they come to fight the next general election campaign. Labour needs to be prepared.

Lamentations​ of national decline have been a cottage industry in Britain since the 1950s. The thesis advanced by Perry Anderson and Tom Nairn in the 1960s and 1970s was that Britain modernised too early and not enough, never experiencing a proper ‘bourgeois revolution’ (along the lines of 1789) or developing a fully self-conscious or revolutionary proletariat. Britain’s empire engendered an inflated sense of political and economic grandeur, but two world wars and subsequent decolonisation left an exhausted nation without any tradition of innovation or democracy to draw on. The context for the economic challenges of the 1960s dated back to the 1640s. Talk of ‘the crisis’ was a constant feature of New Left debates; Hall’s account of Thatcherism was also the story of a country in decline. Since the 1980s, British scholars and critics have produced a succession of pessimistic diagnoses: ‘post-democracy’, ‘postcolonial melancholia’, ‘elite debacle’, ‘capitalist realism’, to name just a few.

The historian David Edgerton has warned against the seductions of national ‘declinism’ on the left, not least because it works symbiotically with the nationalist ‘revivalism’ of the right. The claim that everything has been getting worse for decades is a gift to Thatcherites and Brexiters, who promise a dramatic turnaround in the fortunes of the nation, and would like to banish those who talk down Britain’s prospects. Edgerton went to considerable lengths in The Rise and Fall of the British Nation: A 20th-Century History to dispute the claim that the interwar and postwar British economy was a failure, or that it needed ‘reviving’ in the way Thatcher promised. For Edgerton (and the Resolution Foundation appears to agree), Britain’s current economic malaise began under Thatcher, when rent-seeking via the housing market, privatisation and financial ‘innovation’ became the basis of Britain’s economic growth. But even Edgerton would agree that we are now in a very bad way. The poor quality of the Tory leadership candidates and the unseriousness of the debate between them creates the impression of a country that can now only speak to itself in slogans, oaths and insults, and has no capacity to describe or explain its problems.

Away from the theatre of the leadership contest, the signs are that Britain’s elites now intend to stake everything on another financial free-for-all. Inexplicably, the Bank of England recently abolished the regulations that impose affordability criteria on the sale of mortgages, meaning that lenders no longer need to check whether borrowers have the capacity to repay if interest rates rise further. A new Financial Services Bill, supported by Sunak and the current chancellor, Nadhim Zahawi, will challenge the power of the Bank of England to regulate financial services, with the aim of releasing the City of London to engage in greater risk-taking. The Brexiters’ ideology, according to which Britain remains restricted by its conformity to EU rules, may have one more hurrah, if it can liberate speculators for another few years before the Ponzi schemes finally collapse. Truss has frequently promised to ‘unleash’ Britain from the bonds of taxation and regulation. Given what is known about Tory Party donors, the proprietors of the newspapers who support her, and the oligarchical concentration of wealth at the top of British society, one must wonder who or what precisely will be ‘unleashed’. It seems unlikely that an army of entrepreneurs or visionaries will suddenly ride to the rescue, but all too likely that the already wealthy will find Britain an even more ‘efficient’ place to live and deal than they did before.

Against this backdrop, the temptations of ‘declinism’ become harder than ever to resist, even for policy wonks. The word ‘serious’ is used 28 times in Stagnation Nation, each time with a sense of exasperation regarding the delusional nature of discussions about economic policy – not only on the right. The report does not conclude with a policy programme (that will follow next year), but the list of problems confronting any ‘serious’ policymaker is substantial. Britain achieved very little in the way of growth or productivity gains during the 2010s, despite exceptionally low interest rates and inflation, and will find it much harder going now. And yet significant redistribution has never been achieved without economic growth. That said, should a country that has just experienced temperatures of 40°C for the first time really be prioritising economic growth at all?

22 July

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