Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.
“Back to the Seventies” memes have been done to death. Yes, yes, we get it: inflation, debt, slow growth, a foreign war leading to an energy crash, Abba back in the news, Kate Bush back in the charts.
But the most depressing parallel with that wretched decade has barely been mentioned. What characterised Seventies Britain was not just decline, but declinism: the sense that reforms were impossible because vested interests were too powerful.
Plenty of people – even Edward Heath in his Selsdon phase – understood that the problem was excessive government. But the idea of denationalising companies, cutting budgets or lifting exchange controls was unthinkable when the trade unions and standing bureaucracies were so immobilist.
Labour and Conservative politicians contented themselves with tinkering at the edges, leaving largely intact the command economy that had been created after 1940 on a supposedly emergency basis.
I can just about recall that era, impressionistically if not in detail. My first clear political memory is of Margaret Thatcher’s 1979 victory, but I vaguely remember the feel of the years that went before. I remember power cuts and picket lines and days when school was closed.
Most of all, I remember the despair. I remember the way adults used to talk of Britain being finished, of the country having “gone to the dogs”.
It was in those days – in 1974 – that Milton Friedman coined the phrase “the tyranny of the status quo”, a reference, not only to our irrationally change-aversion nature, but also to the way that vested interests attach themselves to the existing dispensation, finding ways to profit from even the most irrational rules and then furiously resisting any change.
Which brings us to our present discontents. The fundamental problem faced by Liz Truss and her ministers is very simply stated: the status quo is unsustainable, yet change is unpopular.
Just as in the Seventies, measures that were brought in on a supposedly contingent basis have become semi-permanent because undoing them would upset their beneficiaries.
This is most obviously true of the response to the pandemic. Britain, like other countries, spun the spending taps open, and now struggles to screw them shut again. Yes, we have wound up the furlough scheme and terminated the business grants. But the big increases in health and social security spending are now assumed to be permanent.
The cost of the lockdown was colossal – around £400 billion, depending on precisely how we measure it. Yet yesterday’s newspapers solemnly reported that public spending would need to be cut by £60 billion “to pay for unfunded tax cuts”.
Seriously, guys? You think it’s the tax cuts the are the problem? The £5 billion cost of taking a penny off income tax? The £1.7 billion from the IR35 reforms? That, rather than the £60 billion energy subsidies? Or the £400 billion pandemic?
Sadly, such coverage reflects the national mood. Cuts are viewed as a choice, a deliberate preference for a Dickensian society, rather than as a return to somewhere closer to pre-2020 spending levels.
Why are voters so reluctant to accept the obvious – that paying people to stay home for two years is hellishly expensive? Partly because those who backed the lockdowns want to vindicate their choice, and partly because it is only natural to prefer sweet reassurances to bitter truths. The fact that both parties backed the splurge – Boris Johnson spoke of “the Treasury’s massive fiscal firepower” and boasted that Britain’s furlough was more generous than other countries’ – convinced voters that there must be plenty in the kitty.
But there wasn’t, and there isn’t. Carrying on with pandemic spending levels is simply not possible.
The same is true of the policy pursued since March 2009 – money-printing and ultra-low interest rates. That, too, was supposed to be a one-off response to an emergency situation: the banking crisis. That, too, became permanent, as those who benefited from the asset bubble became a larger and larger chunk of the electorate.
The return of interest rates to something closer to their historic levels is global and inescapable – and, indeed, desirable.
Yet, to listen to our broadcasters, you’d think that any rise is both catastrophic and deliberate. Once again, the concept of lesser evils, of trade-offs, is completely ignored.
Yes, a steep rise in interest rates will hurt some mortgage-holders, especially those who borrowed to the hilt on the assumption that anomalously low rates would carry on forever. Yes, it will kill off some of the zombie enterprises that came into existence on the back of cheap money. But it will allow growth to resume on a sustainable basis.
The rise in interest rates, like the fall in spending, is as ineluctable as the changing of the seasons. Yet, rather than face facts, we cast around for someone to blame. Hence the constant assertions by Labour that the Kwasi Kwarteng “crashed the economy” with the mini-budget.
Objectively, this is about as silly a claim as you could make. In what sense has the economy been crashed? Has unemployment risen? Has the stock exchange collapsed? Are we in recession? Of course not. The ONS has in fact just uprated its growth forecast, and the IMF now admits that Kwarteng’s reforms will boost growth.
But blaming the Tories is a useful displacement activity, a way of avoiding the disquieting thought that we are still due an almighty reckoning for the lockdowns.
Eventually, that truth will become inescapable. You can avoid reality, but you cannot escape the consequences of avoiding reality. In the Seventies, the consequences took the form of an IMF bailout – the only time in our history that even the NHS budget was cut.
Perhaps something similar will happen this time: a Labour government, a sterling crisis, and a full-scale collapse. Or maybe, just maybe, we can begin the necessary changes now.
Heath or Thatcher? We’ll find out soon enough.