A tale of two crises, or the anachronism of Rishi Sunak
Many UK policy elites believe that the resolution of the COVID-19 economic crisis has led to a political crisis of fiscal irresponsibility – but voters are starting to think differently
Rishi Sunak entered the Conservative Party leadership election contest as the clear frontrunner, given his apparent popularity among Tory MPs, and the lack of a dominant opponent from the right of the party. But this was always a deceptive state of affairs. Sunak’s campaign was losing momentum even as he secured a place on the members’ ballot in first position.
There are lots of things that could be said about how this happened — some of them Sunak’s fault, and some of them really not — but I am going to focus in this post on Sunak’s place in the post-pandemic ideological landscape of British politics.
While Conservative Party members are remarkably unrepresentative of the British population in terms of demographics, this does not mean they do not understand, and indeed adhere to, the ideological ‘zeitgeist’ which tends to nudge all political parties in a similar direction over time (even if they disagree on the path to take).
The COVID-19 pandemic has been a zeitgeist-shifting event, especially occurring in the wake of the 2007/08 financial crisis and the Brexit vote in 2016. By introducing measures such as the furlough scheme, Sunak came to personify the British state’s economic policy response to the pandemic, much to the annoyance of Boris Johnson. But he has also been the main architect behind, and advocate of, the recent scaling back of pandemic-related largesse.
The second COVID-19 crisis
As such, Sunak has apparently failed to understand what made him so popular in the first place, and instead advanced what James Wood, Valentina Ausserladscheider and Matthew Sparkes call ‘the manufactured crisis of COVID-Keynesianism’. Wood et al’s excellent paper details how political and economic elites in the UK, Germany and the United States have ‘attempted to legitimise a potential return to neoliberalism’ following the radical interventions necessitated by the pandemic.
They have done so, primarily, by applying a critique of the postwar Keynesian paradigm — originating in the 1970s — to the present moment, focusing on the fiscal risks of borrowing to fund current spending, and the inflationary consequences of fiscal and monetary indiscipline.
Wood, Ausserladscheider and Sparkes’s paper is, in some ways, a successor to my own paper on ‘building back before’ (with Daniel Bailey, David Beel and Nick O’Donovan), which focused on the first economic crisis of COVID-19. (The two papers will soon appear together in an issue of Cambridge Journal of Regions, Economy and Society, focused on ‘The State and the Covid Crisis’.)
My co-authors and I do not focus on policy narratives, but instead examine the design and impact of pandemic-related policies (including public expenditure patterns related to these polices). Specifically, we cover the furlough scheme, furlough-style support for the self-employed, monetary policy interventions such as the Covid Corporate Financing Facility, business support grants and loans managed by central government or the British Business Bank, and small grants for SMEs managed by local authorities.
We argue these interventions, while novel, have the effect of ‘mirroring’ the UK’s pre-crisis economic model. As such, they serve to replace many private sector functions with the public sector for a defined period, but essentially leave the economy unaltered. Ironically, it may be that not intervening would have been more transformative; but the crisis was deemed to be something to be endured temporarily, not an opportunity to correct the problems that made the UK economy susceptible to crisis.
Sunak’s second act
Although the pandemic is far from over, the first economic crisis of COVID-19 has effectively been resolved. We can understand crises as destabilising episodes which require systemic interventions to re-establish stability. Economic crises may give rise to exceptional policies which would be unthinkable in ‘normal’ conditions, but the purpose of these interventions is generally to restore rather than reform the ‘before’ economy. Big changes may come later, but they rarely happen immediately.
With the pre-crisis economic order restored, elites will invariably seek to restore its legitimating narratives and constitutive policy practices too (not least to inhibit the possibility of ‘big changes’, down the line). Wood et al are sceptical of accounts of COVID-Keynesianism which see it as ‘a reorientation of economic policymaking around a new paradigm, marking a distinct break from neoliberalism’:
“Rather than marking a permanent shift away from neoliberalism, Keynesian-style policies may be temporarily ‘borrowed’ by the neoliberal policy paradigm as a form of economic crisis management before returning to ‘normal’ neoliberal policymaking once the crisis subsides.”
Interestingly, Wood et al’s analysis of the British case — completed before Boris Johnson was ousted as Prime Minister — draws heavily upon statements made by Sunak. This is understandable given that Sunak was Chancellor of the Exchequer at the time, and enjoyed considerable policy autonomy from 10 Downing Street. The paper also draws upon statements by the House of Commons Public Accounts Committee, and House of Lords Economic Affairs Committee, both of which have long upheld ‘the Treasury view’.
In his October 2021 budget speech, for example, Sunak described high levels of public spending as ‘immoral’ and argued:
“while it is right to help people and businesses through an acute crisis like this one, in normal times the state should not be borrowing to pay for everyday public spending”.
It is therefore unsurprising that, of all the leadership candidates, Sunak has been the most reticent on the prospect of reducing tax. He has consistently argued that borrowing needs to be brought under control before Exchequer revenue can be jeopardised by tax cuts.
It should also be noted that the Labour opposition has frequently contributed to a narrative of crisis around pandemic-related spending since 2020, with Wood et al citing deputy leader Angela Rayner’s argument that ‘it is our grandchildren who will still be paying off the debt that has mounted up over this period’, as well as backbencher Kim Leadbeater’s use of the ‘magic money tree’ trope (also used by Keir Starmer recently).
The question now, however, is whether a renewed zeal for fiscal and monetary conservatism will remain hegemonic given that Liz Truss seems highly likely to defeat Sunak in the leadership contest.
The fact that Truss is cited only once in Wood et al’s paper is perhaps revealing in this regard (although note that she did not hold an economic policy portfolio at the time it was written). The paper cites her discomfort with the ‘command-and-control economy’ which she argues emerged in the UK to fight the pandemic. Yet concerns around an increase in public ownership, or more regulation of the private sector, are not necessarily synonymous with concerns about public spending (even if they may be closely related).
Wood, Ausserladscheider and Sparkes are right to note that economic crises rarely give rise to a ‘permanent institutional shift’. My co-authors and I might also be right, however, that crises generally leave an ‘imprint’ on economic governance. The economic response to COVID-19 itself drew upon policy innovations developed after the financial crisis and Brexit vote, and indeed the entire 2008-2020 ‘inter-crisis’ period when a ‘substitutive’ dynamic came to characterise instances of public/private sector interaction.
Sunak will lose the battle, but Truss might not win the war
Sunak clearly hopes that COVID-19 will leave no trace (and/or he thinks that this is what the public wants to hear). Yet the British public had become significantly more supportive of higher levels of public spending even before the pandemic, according to the 2018 British Social Attitudes Survey. Crucially, this applied to 53% of Conservative voters, as well as 67% of Labour voters.
(The influence of this shift can clearly be seen in the Conservative Party’s fiscally expansive 2019 manifesto, a programme which was largely derailed by the pandemic.)
Truss is more in tune with the emerging (or aborted) Johnson agenda in this regard — as I will explore further in an upcoming post. I do not buy Stephen Bush’s argument that ‘had the Conservative leadership election taken place in January 2022, Rishi Sunak would have won it and won it comfortably’. Sunak may have been convincingly ahead of all other candidates among members at that stage, including in head-to-head polls versus Truss. At the time, however, he was still seen as loyal to Johnson; but there would have been no prospect of a leadership contest taking place unless this changed (it would always have taken betrayal by Sunak, as Chancellor, and the significant parliamentary base Sunak enjoys, to oust Johnson at this stage).
Moreover, Sunak’s own personal circumstances — his US green card and wife’s non-dom status — had yet to come under scrutiny. And most importantly, the policy cleavages between Sunak and Johnson took a little time to emerge, but would always have been a feature of a leadership contest, whenever it was held, because there was always going to be another candidate who presented as a more authentic ‘continuity Boris’ (a mantle Truss had not quite grasped until recently).
There are undoubtedly many Conservative Party members who agree with Sunak that public spending had breached sensible limits as a result of the pandemic. Winning Michael Gove’s endorsement — with Gove describing Truss’s economic plan as ‘a holiday from reality’ — may mean that all hope is not yet lost for Sunak. And it also remains possible that Truss will pivot back towards a more ‘orthodox’ position on the economy even if she wins on her current platform.
It seems much more likely, however, that the experience of the pandemic has in fact hardened support for a more interventionist state, and that this is reflected even among the attitudes of Conservative Party members (although we should be careful not to confuse intervention with redistribution).
This certainly does not mean that the manufactured crisis of COVID-Keynesianism identified by Wood, Ausserladscheider and Sparkes is no longer relevant in the UK. The Treasury will remain hugely powerful; we can expect the department to implore Truss to be cautious on fiscal policy. Similarly, the Bank of England’s preference for monetary tightening to fight inflation will prevail for the foreseeable future, whoever is in Downing Street.
As such, Sunak would have struggled to sell his agenda politically, but Truss will struggle to implement hers institutionally.
And it does appear that the Labour Party will seek to pick up the baton of fiscal discipline from a defeated Rishi Sunak, in order to create distance between itself and the Truss agenda — at least in terms of policy narrative, even if many of Labour’s policies tell a different story. (I fear that accepting this framing would be a grave error, from a strategic perspective; I will explore Labour’s strategy in the aforementioned upcoming post too.)