From the archive: Why the Tories won’t fix the economy

Michael Harris /   July 5, 2015 at 6:29 PM 1,613 views



Today’s Observer leads on a former senior adviser to David Cameron calling for all employers to be forced to pay the living wage to combat poverty and boost the economy. The Government reportedly wants to end the situation where employers are in effect subsidised via the tax credit system for employing people on low wages, which is surely to be welcomed in principle. But this isn’t a situation the Tories have inherited – it’s the deliberate and logical outcome of Tory economic policies. And that’s why more Tory economic policies can’t solve the problem.

The debate going on in Tory circles about the living wage isn’t happening because they actually believe in fairer wages (more on this in a moment). Rather, it’s the result of a continuing (renewed) commitment to austerity. George Osborne’s desire to cut the welfare budget by a further £12 billion by 2017/18, and the Tories’ electoral need to protect benefits for current pensioners, make achieving this total without cutting in-work benefits and tax credits impossible. And the numbers are meaningful: analysis by IPPR and the Resolution Foundation suggests that the Treasury could make savings of £3.6 billion if all employees were paid at least the living wage (£2.2 billion if you take into account the cost of implementing it in the public sector). The IFS has suggested even higher savings.

But of course, this is obvious – if employers paid fairer wages, the state would have to spend less to support people. The problem is that recognising this, and more importantly, doing something about it, contradicts the past forty years of conservative economic thinking.

The Tories’ economic philosophy – shared with their US counterparts – can described as ‘cheap labour Conservatism’. Lower wages and high unemployment, allied with deregulation, privatisation and tax cuts for the rich, serve the corporate elite who pay for the Party. It may also (coincidentally or otherwise) be their genuine worldview that ‘labour market flexibility’ (less employment and social protections for workers) generates more jobs and wealth over time.

This also means that austerity – best described as punishing the poor for mistakes of the rich – is inherent to Conservative economic policy. The Tories still believe in discredited trickle-down economics – they’re just smart enough not to say it as publicly as they once used to. This is why we have an economy with:

  • Rising inequality – exacerbated by tax cuts that privilege the rich
  • Persistent low productivity – the necessary counterpart of low wages
  • A lack of investment – in labour (in skills, training, schools and further education), business research and development, and infrastructure
  • Weakened employment and social protections – and with more attacks on organised labour to come
  • Growth propped up by housing booms and ballooning consumer debt.

The Tory economic ‘vision’ is of Britain competing in a race to the bottom. The sensible alternatives – such as sufficient regulation to ensure that businesses compete on quality and innovation, and public investment in productivity in the form of education, skills and infrastructure – are anathema to cheap labour conservatism. It is an ideology of disinvestment, one that made the recession longer and deeper than it needed to be (rather than representing a vindication for austerity, the subsequent recovery owes much to cheap labour as well, relying on a large unemployed potential labour force desperate for work, often in part-time and/or multiple jobs).

The kind of economy this produces and which is reliant on low wages necessarily means more state welfare and support (which is why the Tories will never actually achieve their stated aim of a ‘small state’, despite forty years of trying). The budgetary pressures this creates means that, by way of a distraction from economic failure, the poor need to be characterised as the problem; it’s their supposed lack of character and their ‘values’, and not the economics to which they are subject, that are the cause of our woes. The Tories aren’t the nasty party out of character; they’re nasty because their economic policies require it.

Cheap labour conservatism isn’t limited to Tory governments; the New labour Governments shared much of the same philosophy, despite the greater investments they made in education and the (very cautious) introduction of the minimum wage. But it’s the Tories who created this economy and who own it; recall their crowing that Labour had accepted the Thatcherite economic ‘consensus’ in the 1990s, while simultaneously arguing that Labour’s ‘conversion’ wasn’t sufficiently genuine.

Remember also that the Tories were against the introduction of the minimum wage in the first place, claiming it would lead to economic doom. It didn’t, of course. Repeating the same mistake, they have been hostile to the living wage; in November 2013 they dismissed plans by Labour to encourage employers to pay the living wage as “unworkable” and “unaffordable”. But in an attempt to head off the debate about the living wage, and because they were vulnerable on the ‘cost of living’ debate that was prominent during the last Parliament, the Tories have proposed to increase the minimum wage above inflation (itself a tacit recognition that it had fallen in value in real terms over the past ten years).

As is obvious however, this won’t solve the problems of low wages that cheap labour conservatism aims to create. The startling fact that the government spends more on benefits and tax credits for families where at least one person is in work than it spends on unemployed families is a wholly foreseeable outcome of cheap labour conservatism, not a legacy of ‘welfarist’ Labour Governments (whatever George Osborne might argue). Which is to say, these problems aren’t ‘accidental’ to Tory economic policies or things that can be fixed through more Tory economic policies – they are Tory economic policies, they are both the aim and the outcome. Without a continuing commitment to cheap labour, there’d be little left to conservative economic thinking.

Not only that, these policies represent a massive waste of economic and human potential. And it’s here that the left could win the argument. The Tories’ emerging debate on pay and the living wage represents an opportunity to make a bigger argument about the economy as a whole. History sadly suggests the chance might be missed. So poor was Labour’s economic story during the last Parliament that the Tories’ cheap labour conservatism and its destructive consequences were barely challenged. Despite some late references in the election campaign to the economy ‘only succeeding when working people do’, Labour failed to create a pro-investment agenda that challenged cheap labour conservatism head-on. It neglected to make the economic argument for a fairer society, preferring instead to make the fairness argument for a fairer society (so failing to persuade anyone who wasn’t already on side).

The Tories continue to try to rebrand themselves as the ‘party of working people’, but their economic policies will always make this difficult if not impossible. They misled voters during the general election campaign by claiming that under a Conservative government, ‘Everyone earning the Minimum Wage lifted out of income tax altogether.’ As even the Spectator magazine pointed out, this isn’t true – the actual Tory proposal was a cap on this commitment to anyone who works up to 30 hours a week (more than 560,000 of the 1.4 million people on the minimum wage work full-time and so would keep paying tax).

This is a Tory economy. By definition, more Tory policies won’t fix it. And we can make a better, easy to understand economic argument in its place: that more money in the pockets of ordinary people is the only real way to grow an economy.

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