Things have now become so bad for the UK economy that almost no one disagrees it is time for radical change. On the rare occasion that public debate turns to issues of political economy, you almost never hear the question, “But how are we going to pay for it?”
Much as doctors in most private hospitals would triage a gunshot victim before turning to questions of payment, immediate action is required to reverse the UK’s horrendous economic fortunes. “Paying for it” has become a secondary consideration.
But this message has yet to reach Keir Starmer and Rachel Reeves, who seem intent upon resurrecting an austerity politics pronounced dead by none other than Boris Johnson. The pair are absolutely adamant that no new spending commitments can be announced by the opposition unless they are fully costed.
The very obvious problems with this policy were outlined by Keynes nearly a century ago: namely, that when private spending and investment drops, the resulting reduction in demand can become self-reinforcing. Only the state has the power to step in and arrest the cycle of declining economic confidence by investing where private actors will not.
One might respond by pointing to the fact that while private investment is weak and incomes are constrained, inflation remains high. Public spending must therefore align with monetary policy in constraining demand in order to keep inflation low.
But inflation, as I have argued many times before, is a political phenomenon. It is not enough to ascertain the level of inflation – you also have to look at which prices are rising and at whose expense.
As several economic studies have now shown, the inflationary pressure we are experiencing today is largely the result of corporate greed rather than excessive government or consumer spending.
Large corporations are using their market power artificially to inflate prices, with the inflationary climate acting as a convenient excuse. After all, the consumer doesn’t know how much of the increase in the price of their loaf of bread is due to rising grain prices and how much is supermarket price gouging.
The only way to tell is to look at corporate profits — and profits have been extraordinarily high during what most people are experiencing as extremely hard economic times.
The big oil companies made record profits in 2022. Chevron, Exxon Mobil, Shell, BP, and Total raked in $195 billion in profits in 2022 — up 120 percent on 2021, when profits were also sharply higher than the year before.
Exxon Mobil — a company famous for covering up early evidence of climate breakdown, sponsoring climate denialism, and lobbying against decarbonization — saw the largest increase in its profits, reporting $56 billion worth of profit in 2022, the highest in the company’s entire history. 2023 looks set to be just as profitable for big oil. In the first quarter of this year, Exxon reported profits that were double those of the first quarter of 2022.
The companies that deliver our energy are doing just as well. Centrica, the parent company of British Gas, reported record profits of £3.3 billion — up from just £948 million last year. All in all, the UK’s energy suppliers are set to extract £1.74 billion worth of excess profits from stretched consumers over the course of the next twelve months.
Another extractive sector — finance — continues to profit at the expense of working people. The UK’s top banks made £29 billion worth of profits in the first half of 2023, an increase of 80 percent on the same period in 2021. HSBC — famous for facilitating tax evasion and money laundering — reported profits of £16.9 billion for the first half of this year.
Perhaps most grotesquely, the outsourcing companies that are paid to provide government services look set to increase their profits on the back of the government’s demonization of migrants and asylum seekers. Serco — accused of perpetuating a culture of “institutional abuse” at detention centers such as Yarl’s Wood — is expecting higher than normal profits for 2023 due to immigration services contracts.
While profits have been more constrained in more competitive sectors, the UK economy is dominated by oligopolies operating in highly uncompetitive markets that are able to extract wealth from workers, citizens, and the environment. These companies are using inflation as an excuse to raise prices and increase profits — most of which are distributed to shareholders or used to buy back shares.
This is the answer to the riddle of how growth and investment can be so low while inflation remains elevated. Monopolists are holding up prices while failing to invest in anything other than augmenting their own wealth and power.
In this context, the only way to curb inflation without imposing unbearable costs on workers is to tax corporate profits and the wealth and incomes derived from those profits. The returns could then be invested in decarbonization initiatives that transform our energy infrastructure rather than imposing costs on energy users.
Yet Rachel Reeves has stated outright that she will not back any increases in the top rate of income tax and ruled out any increase in capital gains taxes or the introduction of new wealth taxes. This comes on top of previous announcements that an incoming Labour government will not touch the top rate of corporation tax.
This is not only economically insane. It’s also contrary to prevailing public sentiment. People know that massive corporations are profiting from the cost-of-living crisis at their expense. And they back measures to make those corporations pay, like the windfall tax on energy companies.
One could fault previous Labour leaders such as Ed Miliband for following public opinion rather than attempting to lead it on issues surrounding public spending — for being a weathervane rather than a signpost.
But the new Labour leadership can’t even be accused of blowing wherever the wind takes them. Instead, they seem intent on pushing conservative economic policies even when the general public supports much more radical ones.
There is, of course, a very clear reason for this. Under the leadership of Jeremy Corbyn, public opinion on issues of economics shifted so profoundly as to terrify the ruling class — even without an election victory.
As “capital’s B team,” it’s the job of Keir Starmer and Rachel Reeves to shore up support for the status quo. I’m sure that the coterie of advisers and lobbyists that surround the current Labour leadership has convinced them that their approach makes them seem “responsible” and “credible.”
In fact, it simply reinforces the sense held by many voters that all politicians are the same and that nothing is likely to change no matter who they vote for. When these attitudes dominate, people start to believe that the only option is to lend their support to far-right extremists who promise to burn down the whole system. Don’t be surprised if the rise of the far right is the only real legacy of Starmerism.